Did Your Payday Loan Default? Find Out What Happens Next
January 08, 2019 | By Louis Tully
Facing backlash after neglecting to back any loan isn't only common, it's expected. The consequences of a payday loan default aren't much different; late fees, collections calls, and even garnishment of your paycheck are just a few things you can expect to follow.
And if you think that just because you only borrowed $500 that you couldn't possibly get too deep in the hole, think again. An overwhelming number of payday loan borrowers are expected to pay up at least double the amount they took out if they fail to pay back the loan on time. This is why it is absolutely crucial to make sure you'll have the funds available to pay back a payday loan, before saying "yes" to it.
So what happens if you default on a payday loan? Here are just a few things you can expect to happen:
The Lender Will Take Action
Like any debt that's left unpaid, a lender will not hesitate to use any methods allowed to get their money back.
If you've given the lender your bank information, they may even go ahead and try to take their money back themselves (as long as the payday loan agreement you signed allows them to do so). If the charges on your account don't go through at first, it's likely that the lender will keep trying. In some cases, these attempts made by the lender to collect on your debt could trigger unwanted bank fees.
If the lender doesn't have the ability to charge your account themselves, they will contact you continuously until the debt is paid. Emails, letters and phone calls can all be expected, and depending on the lender, they can be quite frequent. Some lenders might even go as far as to contact your friends or family who you may have listed as references when applying for the loan. But don't be alarmed, according to federal law, lenders are only allowed to ask how to reach you. They are not, under any circumstances, allowed to reveal your identity or any specifics about the debt that you owe.
If you failed to pay back any type of loan, don't worry. You're not in trouble with the law. Actually, it's the other way around. If a lender tries to threaten a borrower with arrest or jail time over a debt they owe; they're the ones who could be in trouble, not you.
Likewise, if you ever do find yourself being threatened with jail time by a lender, please contact your local state attorney general's office. However, if you do receive a court order to appear in court, don't ignore it. Even if the court order was sent by mistake, you'll need to at least show up so it can be resolved properly. Not doing so could actually put you in trouble with the law.
An Opportunity to Settle Your Debt
So far, we mentioned a lot of negative things that defaulting on your payday loan could lead to, but there is one silver lining. The fact is, any lender would rather collect directly from you (the borrower) than to hand your debt over to a third-party company (a collections agency). Doing so would technically cost the lender money which is the opposite of what they're trying to do.
If you feel like the lender is getting close to sending your account to collections, that means they're getting desperate. If this is the case, drop the "b" word on them. That's right: bankruptcy. No lender in the world likes hearing that word out of the mouths of their clients. That's because if a borrower actually does follow through with a bankruptcy filing, this means the borrower's debt is technically erased and the lender gets nothing.
Of course, we're not encouraging you to file for bankruptcy here, but by dropping the "b" word on the lender, you might be giving yourself enough leverage to make a deal with them. If a lender has any reason to believe that they might lose money from you, they may be more willing to work something out.
If this ends up being the case, make sure you get any agreement you can establish in writing. This will protect you in case the lender tries to go back on their deal.
If the lender calls your bluff and decides to send your account to collections anyway, don't panic. Most collectors only pay a few cents per dollar for delinquent accounts, so they can afford to settle for less than what you owe and still make money. That means if the lender wasn't willing to settle for less, the collections agency might. If your account has been sent to collections, you will receive a letter saying so.
When the collections agency contacts you, try the same methods mentioned above and see if you have better luck settling your account with the collections agency. As we said, they might be more willing to work with you on getting your account settled.
You May Get Served
Just because a lender canÕt threaten you with an arrest, doesn't mean they can't take legal action. Many lenders or collections agencies have and will sue over a delinquent account, even if the debt is small. In fact, most lawsuits over unpaid debts are generally small debts.
If you lose in court, the judge can issue a judgment against your unpaid account allowing them to collect money from you on behalf of the lender (or collections agency) by means of a bank levy, a lien against your property, or even wage garnishment.
However, most of the time, lenders only win because the consumer fails to appear in court. Not only that, but lenders who are counting on the consumer's absence often don't bother to bring proof with them to the courtroom. So, if you're being served, show up in court, and when standing before the judge, be sure to ask the lender for proof of the debt. One simple question could let you off the hook!
What to Do If You Can't Pay Back Your Payday Loan
If you're struggling to pay back your payday loan, don't lose sleep over it. As long as you're able to cover the basics (food, water, shelter, transportation, etc.), then don't beat yourself up over any other unpaid debts.
There are certain steps you can take to help pay off any outstanding debt (not just payday loans). Consider the following ideas:
- Pick up a second job: Sometimes, a second income is all it takes to get the debt paid off fast.
- Throw a yard sale: Turn your junk into cash! You'll get out of debt and declutter your home at the same time.
- Enroll in a debt management program: Many debt management programs will work to lower your interest rates while consolidating your debts into one monthly payment.
- Create a budget: Learn how to save $100 a month with these simple budget hacks!
- Refinance: Refinancing your auto loan or even your mortgage, could save you just enough money to settle your defaulted accounts.
- Bankruptcy: If all else fails, bankruptcy is always an option. If your debt is higher than half of your annual take-home pay, then bankruptcy might be necessary.
Whenever there's a need, there's a way to meet it. Talk with a nonprofit credit counselor today and see what options are available to you.