February 28, 2019 / By silverbear529
One of the most popular types of short-term loan is Payday loans. If you don’t have good credit and need quick cash, you can consider this option since the lender does not consider your credit score to approve your loan. Most lenders of payday loans demand that you repay the debt within two weeks or do it immediately you get your next pay check.
According to statistics, millions of people take payday loans every year. Most people expect to cover the loan within a short period to avoid incurring high-interest rates. This, however, does not happen to everyone. The risk of defaulting on this short term loan is high. Half of the borrowers end up defaulting on repayments. It is hard to get back on your feet if you default on a payday loan. Here is everything you should know regarding defaulting this type of loan.
How does it happen?
A lender sets a specific time when the loan should be repaid. When the date is due, you should make payments before the lender contacts you. Since you provided your financial information to the lender during borrowing, they can directly draft the remaining balance from your account. If there is no money in your bank account, the lender will continue tracking the account to try and deduct the outstanding balance as they try to collect payment for the payday loan.
If they cannot draft the amount from your account, you may receive calls from the lender requesting you to pay up. They may reach out to close friends and family or try to contact you through email. If you don’t pay up, the loan continues increasing due to penalties and interest. The lender will turn your loan over to another collector if you don’t pay up within 60 days.
Collection agencies handle loan defaulters aggressively. At this stage, the lack of repaying the payday loan may affect your credit report. You may not be approved for other loans in the future. Some collection agencies use aggressive tactics to make defaulters settle payday loans. A lender can sue you for having an outstanding balance out of defaulting to pay a payday loan. With a lawsuit, a lender can get permission from the court to garnish some of your wages.
Though you may not be arrested for defaulting on a payday loan, some aggressive lenders can use threat tactics to force you to repay the loan. If you face a lawsuit and fail to appear in court, you can be arrested for ignoring a court order. Get an attorney as soon as you receive an order from the court.
What is the solution to this problem?
To avoid getting yourself in such situations, you should avoid applying for a payday loan if you don’t have the means to repay it. A payday loan can put you in debt for about five months and accrue fees of up to £ 500. Look for better loan alternatives before you decide to take a payday loan because defaulting on payments can cause you more harm than good.