A payday loan is a short term type of loan that allows you to get quick payday financing. Since the payday loan is unsecured, you do not need to provide collateral in order to be approved. What's more, you can be approved even with bad credit. However, why do many people miss their loan payments? Why do they face a lot of problems if they cannot pay the debt on time?
Table of Contents:
Why is it easy to get in trouble with a payday loan?
What Happens When You Can’t Repay a Payday Loan?
What if you can't pay off your payday loan? Payday Loan Consequences
How to Rebuild Credit if you could not pay off the payday loan?
How can you improve your credit?
FAQ
Why is it easy to get in trouble with a payday loan?
Many borrowers consider a payday loan to be a good solution to their problems, as it allows for a quick approval and almost instant repayment. Unfortunately, when money is urgently needed, people do not pay attention to high-interest rates, as all they are looking for is easy approval. However, a payday loan with minimum eligibility requirements can be a debt trap it will be difficult to get out of.
As you know, getting a payday loan is easy enough as the lender asks for a minimum number of eligibility criteria. All you need is to be over 18 years old, have a source of income and an active bank account. What's more, payday lenders offer a convenient online form that allows you to get approval in minutes. Thus, a borrower who urgently needs money takes out a loan regardless of its drawbacks.
However, if you carefully study the terms of the loan before taking out a loan, you can understand that interest rates are unprofitable for a person in an emergency. If it happens to you - as a rule, you are looking for an opportunity to get quick cash because the problem requires urgent financing. Payday lenders use your unfavorable financial situation to offer you prohibitively high-interest rates on your loan. Sometimes the annual interest rate can be as high as 400 percent. Because of this, many people fail to pay their debt and miss out on payment. Moreover, a refinancing proposal may further exacerbate the situation, as extending a loan has additional fees. Thus, the borrower receives a huge amount of debt that he is unable to cover.
The most reasonable decision is to compare the best Payday Loan lenders and get the loan with the most favorable conditions to avoid any unpleasant Payday Loan consequences:
What Happens When You Can’t Repay a Payday Loan?
Many people apply for a payday loan without thinking about whether they can repay the loan on time because an emergency requires a quick payment. However, they do not know that non-payment of the loan can lead to a number of serious consequences that they will have to be faced with. Study the main ones to understand what to be prepared you cannot pay off the payday loan.
- You may be faced with additional payments. A payday loan can lead to additional fees, interest or fines depending on the state of your residence and the lender you choose. There is a special type of commission called nonsufficient funds (NSF) that is charged if you cannot cover your monthly loan debt.
- Also, a late payment affects your credit history. As you know, a payday loan can improve or worsen your credit rating. Timely payments can help you improve your credit, however, the missed payment is reflected in your credit report, thus you will receive less favorable interest rates in the future.
- Collectors' activity is a frequent occurrence if the borrower does not repay the loan on time. As a rule, the lender tries to get the money within two months, but if he does not receive it, he often turns to third-party debt collection agencies. Most often, collectors call and send letters in order to receive money, and the next step is direct contact. As a rule, collectors are difficult to deal with, so it is better not to bring the situation to such a state.
- If the collection agency was unable to get your payments made, there is a chance that you will be prosecuted. It doesn't matter at all how much you owe: even a small debt can be a big problem. Also, in case of non-payment of the loan, you may face the lien on your personal property. Moreover, a lender can garnish your wages so you won’t have funds to cover your monthly needs.
- The worst situation is the threat of arrest. If this happens to you, you should contact the state attorney general's office as these threats are illegal. You cannot go to jail, but you will be obliged to pay off the loan debt.
What if you can't pay off your payday loan?
If you have no money to pay off a payday loan, then you need to know what to do and how to behave. Learn the basic tips and follow them if you are unable to cover your debt.
- First and foremost, remember you can't go to jail if you don't pay off your payday loan. Many people start to panic and only complicate the situation more, but you should not do this because anxiety will not lead to anything good.
- Cover essential needs like rent and food. Even if you have a loan debt that you cannot repay, you should not starve in order to return the money you borrowed. Nothing is more important than your health.
- Try to borrow money from friends or family. If they can help you pay off the debt, this will be a good option for you as you will get extra time. As you know, lenders charge a commission for extending the payment deadline, while relatives will be more loyal to your debt.
- If you do not have someone who can help you, then you should contact a nonprofit credit counselor, bankruptcy attorney or legal aid center in order to help you figure out your next steps.
- Do not delay paying off the debt, as it only increases over time, so it will be more difficult for you to pay off the loan.
How to Rebuild Credit if you could not pay off the payday loan?
Typically, late payments not only affect your nervous system but are also reflected on your credit report. Every mistake you make affects your credit, so you can make it worse if you missed your loan payment. A bad credit score leads to unfavorable interest rates, that is why it is important to recover your credit after you have failed to pay your payday loan on time.
How can you improve your credit?
- First and foremost, you need to focus on paying your bills on time. After you have been unable to pay off your payday loan, you need to behave as a trustworthy borrower. Thus, you must pay off your credit card debts, mortgages, loans, and other bills on time. To avoid missing payments, you can set reminders.
- You also need to constantly check your credit report. If you get in the habit of following your report, it will be easier for you to understand what interest rates you can get. Also, by paying your bills on time, you can see how your credit score improves.
- Try to keep your costs down. Sometimes we don't notice how we spend a lot of money on something we don't need. Thus, if you keep a monthly financial record, you can understand what you spend the most money on and what you can refuse. With finance accounting, you can spend the money you save on paying off loans and credit card debts.
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