What Happens If I Cannot Repay My Payday Loan?
Are you struggling to repay your payday loan on time? Click here to learn what happens to overdue payday loans and what you can do for damage control.
How payday loans are supposed to be repaid
Most payday loans are payable within two weeks, right about when the next paycheck is scheduled to arrive. Payday loans are payable through:
- Automatic bank withdrawal. The borrower commits to have the due payment ready in a bank, credit union, or prepaid card account. The borrower informs the bank/union of this agreement, and the lender will receive the funds on the due date.
- Post-dated check. The borrower writes a check for the payment. The lender can only cash it on the due date.
If there’s no money to pay the loan
If the account lacks the funds or the check bounces, lenders will resort to other ways to collect their money. There are several things lenders can do to recover their funds.
1. Follow-up calls, emails, and written letters of notice
Payday lenders have contact numbers, email addresses, and home addresses from loan applications. They will try to follow up with delinquents through any of these channels. The texts, calls, emails, and letters can be irritating and troublesome.
2. Charge late fees, added interest, and other loan penalties.
Overdue payday loans continue to accumulate interest. On top of this are late fees plus other penalties. The loan can balloon very quickly, making it less manageable.
3. Give negative feedback to credit bureaus.
Lenders can report gross delinquents to the three primary credit bureaus. Reports on late and nonpayment of payday loans can hurt your FICO credit score. Credit reports can make borrowing in the future difficult or expensive.
4. Debt collection
Lenders may use a debt collection agency to collect difficult-to-collect debts. Debt collectors have the authority to negotiate repayment schedules or settlements on behalf of the lender. They can call, email, send a letter, or come to your house to get you to sit down and talk.
Dodging debt collectors can become a full-time job. Debt collection has become sophisticated with the help of technology. People are now easier to find using phone calls, social media, credit card purchases, etc.
5. Ask your friends and/or relatives who have repaid on your behalf before
Lenders or debt collectors can contact your guarantors from previous loans. They will ask your friends and relatives to get a hold of you. The number of calls, emails, and notices they will receive can be burdensome.
6. Court-ordered wage garnishment
A lender can file a lawsuit for late or nonpayment of payday loans. The lender will request a settlement for the damages. If the court rules in favor of the lender, the judge can issue a wage garnishment order. The court order compels the borrower’s employer to withhold a part of the borrower’s salary to pay for the debt.
A lender or debt collector cannot request a wage garnishment without a court order. They have no authority to go to an employer to ask for debt payments or settlement negotiations.
Interest and charges while the money is overdue
Overdue payday loans continue earning interest plus extra charges. A two-week $100 loan with 15% interest will roll over every 14 days.
- After the first 14 days,
- Current loan amount: $100
- Interest: $100 x 15% = $15
- Total: $115
- After the second 14 days,
- Current loan amount: $115
- Interest: $115 x 15% = $17.25
- Total: $132.25
- After the third 14 days,
- Loan amount: $132.25
- Interest: $132.25 x 15% = $19.84
- Total: $152.09
Extra charges while the money is overdue include late fees and service fees. The rates and terms vary from lender to lender.
Can I go to court if I don’t pay back a payday loan?
Yes. Lenders will try everything else first. But they may take you to court for not paying back a payday loan as a last resort. A lender can file a lawsuit against a delinquent borrower, and the court sets a hearing date. Both lender and borrower must attend. Non-attendance means an automatic win in favor of whoever is present.
What do I do if I can’t repay my loans?
There are ways to do damage control and prevent yourself from drowning in debt.
Talk to the lender
As soon as you realize that you cannot repay your debt by the due date, it is best to talk to your lender immediately. Ask for a grace period, a repayment plan alternative, or other forms of considerations. Talk to your lender and give an update. Do not disappear out of the blue and expect them to be considerate.
Get professional help
Some non-profit organizations and charities offer free financial consultations and help. You can ask them about your rights despite being a delinquent borrower. They can also give you advice about the best options on how to settle your loan.
If you need legal help, public and private law firms offer them pro bono (for free). Whether you need one in a court hearing or need help declaring bankruptcy, a lawyer can always be helpful.
Declare personal bankruptcy
You have the option to file for personal bankruptcy. Declaring bankruptcy can reduce or end debts, but it comes with dire consequences. It hurts your credit history, which can leave you with little to no access to credit for the next ten years. Bad credit history can also harm future employment.
If mistreated by a lender or a debt collector, complain. No matter how much you owe them, lenders and debt collectors cannot harass you, your family, friends, and employers. Texting, calling, and emailing are fine, but not verbal or physical harassment under any circumstances.
Know your rights and document every encounter. File a complaint with the authorities when needed.
Jake Walker knows that good information is critical for financial success. It is his fifth year of working in the finance sector and his 3rd year working as Head of Content with AdvanceSOS. Jake’s contributions are highly valued when it comes to assessing cash flow and optimizing fiscal resources. With his certification and qualification in the field, Jake takes pride in helping as many as possible achieve their true financial potential.