Not being able make payments on time can be a harbinger of undue stress. Since no two individuals are alike, the reasons for this can vary depending on circumstance. However, the implications of not being able to do so remain just as potentially severe.
Let’s say you take out a payday loan. You know that you already have a short timeframe to pay back the money you borrowed. However, uncertainties are still bound to happen and you might end up defaulting on the loan.
What happens if you default on a payday loan? The following are just some of those repercussions, described in detail:
1. Uses of Payday Loans
There are situations when payday loans can be extremely helpful, such as when you need to get cash within a short amount of time. When it comes to taking out a payday loan, it’s best to use them for urgent situations. This comes down to a plethora of reasons, but mainly resides in the fact that they are for emergencies. If you do end up in a precarious situation, always double check your financial situation.
This is because you don’t want to have to add on to your already drastic list of things to do. Many financial experts advise clients to instead try out alternatives, or ask for help from family members. When in doubt, it is never too late to take out an emergency loan. Just be sure that you’re in good shape to pay it back in time.
2. Collection Calls
One of the most direct actions a lender will take is to initiate collection calls. Lenders are extremely serious, as it pertains to receiving the money they are owed. As soon as your payday loan due date is passed, you may see automatic withdrawals from your bank account. Since you will have given them access upon agreeing to the loan, the charges will be immediate.
The amount that is being withdrawn will vary, since it is contingent on each, individual scenario. Some borrowers will see smaller amounts being withdrawn, while others may see larger quantities of funds being taken. Late charges are nothing to joke around with; lenders want their money back as soon as possible!
3. Credit Impact
Since payday loans generally don’t require a credit check in the initial stages, you may feel like your score will remain intact. This is far from the case, however. If you find yourself defaulting on a payday loan, the loan will be sent to a collection agency. The longer your loan remains with them, the bigger the impact will be on your overall credit.
Not only is this this burdensome on your financial health, it will affect your ability to take out future loans. In addition, your ability to open further chequing or savings accounts will be frozen. In order to counteract this, it is advised that you try to repay what is owed as quickly as possible.
4. Jail Threats
Don’t be too alarmed; you most likely won’t go to jail for defaulting on your payday loan. However, the more your ability to pay back the original amount is delayed, the worse off you become. Although criminal charges are not to be expected, don’t be surprised to find yourself facing threats of jailtime.
The last thing you want after defaulting on the loan is a run in with the law. Lenders may use some underhanded tactics in order to file criminal complaints against you. If you are facing this sort of threat, you’ll have to take the proper legal steps to protect yourself. It may be taxing on your mind, but it should not be ignored.
5. Court Summons
Threats of jail or arrest are borderline illegal, for lenders to employ against you. Don’t be surprised, on the other hand, to be given a summons to court. Defaulting on your payday loan will work against you in the worst of ways. If a court summons is filed against you, it is in your best interest to simply comply.
It doesn’t even have to be in regards to a small amount of money being owed. As stated previously, lenders are particularly serious, when it comes to receiving their money back. Again, it is always recommended to not ignore a court summons. You don’t want more trouble, at the end of the day!
6. Renegotiation
The consequences for defaulting on your payday loan are very real. It, however, doesn’t have to be the end of the world. If you provide your lender or collection agency with enough notice beforehand, you may be able to renegotiate. This allows you to come to a mutually-accepted amount of money to be paid back.
When going this route, always be sure to get your agreement in writing. In the event that you do have to be taken to court, you’ll have this new deal working in your favour. Settling an owed amount of debt isn’t easy, but it isn’t improbable either!
