No one likes to be in debt or living on credit. However, sometimes taking on debt or loans can be the only way to survive and thrive. All of us have had our fair share of financial highs and lows, and at times when you need cash, and you have none, payday loans can offer the ultimate solution to your short-term financial needs.
Nearly 12 million American households rely on payday loans to help bail them out in situations where they require cash urgently. These short-term loans are usually associated with high Average Percentage Rates (APRs) that make them expensive cash borrowing options.
However, if you have bad credit, maxed out credit cards, and no friends or family to help bail you out, payday loans are your best and perhaps even your only option. These unsecured personal loans can be lifesavers for those who need cash urgently but don’t have credit or collateral to apply for more traditional types of loans from banks or credit unions.
Getting the money right away is great but having to pay it all back on your next paycheck along with the additional borrowing fees can put a real strain on your finances, especially if you are living paycheck to paycheck. If this is the case, then you might be wondering what happens if you are unable to pay your payday loan in time?
If you are seeking answers to questions such as these and want to learn more about payday loans you have come to the right place. So, without further ado let’s get to it.
What’s the worst that could happen if you default on a payday loan payment? Just like any other loan, if you default on payments, you are likely going to face a number of additional charges, including late payment fees, penalties, interest, and in rare cases even legal action.
Since payday loan providers such as Payday LV often use pre-authorized debit as a way to recuperate funds on your next paycheck you can also be hit with bank overdraft fees if you don’t have enough money in your account. These additional charges can leave you even more financially crippled than before you took the loan and can potentially lead you down a vicious debt cycle.
However, it isn’t all bad news. Payday loans don’t affect or impact your credit score as long as you are able to make even partial payments. It is only if you are unable to pay anything that your account can be sold to third-party debt collectors who are then allowed to report the debt to the credit bureau.
All of this can sound extremely scary or unpleasant but defaulting on any loan can lead you down a similar spiral. Payday loans are no different. The silver lining with these loans, however, is that they are usually of nominal amounts and can be easily paid off with the right guidance and the right help.
If you find yourself in a position where you believe you won’t be able to pay back your payday loan on the assigned date don’t stress. There are several avenues and ways to ensure you minimize damage as much as possible.
The first thing you should do is read up on state laws governing payday loans. Different states have different laws governing payday loans. Read up on these laws to figure out exactly what options you have and whether options such as extended payment plans (EPP) are available to you. These plans can help stop the constant build-up of fees and interest making payday loans a lot more manageable to pay back.
When borrowing from a payday loan lender ensure that they are a member of the Community Financial Services Association of America (CFSA). Borrowing from such a lender offers several benefits, the most important of which is the ability to pay back your payday loan in four payday cycles rather than one.
An EPP also stops the accumulation of interest and or additional penalties making it a lot more manageable to pay back the loan. Best of all, as long as you make your EPP payments on time your account will not be sold to a collection agency meaning that it won’t impact your credit score or appear on your credit report.
Make sure that you apply for EPP at least one business day before your payday loan is due. You can not apply for this service if you have passed your due date. Applying for an EPP can save you a lot of money and hardship and thus it is always best to borrow from lenders that are members of the CFSA.
If an EPP is not an option then you might want to seek the guidance of a credit counselor. Payday loans aren’t like traditional loans and therefore trickier to deal with as their laws vary from state to state. However, a credit counseling agency can help in certain ways.
For one they can help restructure the payment plans to allow you some more breathing room to pay off outstanding debt. They can also help negotiate a settlement to stop the build-up of additional fees and interest by making a lump sum payment which is often a percentage of the outstanding loan amount.
Finally, such agencies can help prepare a budget for you to follow that would help ensure your ability to pay back the loan given your monthly income and current financial situation.
Applying for a payday loan is easy. All you need is a valid ID, an active bank account, and proof of income to be granted a loan. However, that doesn’t mean that you should take a payday loan for the wrong reasons.
Payday loans are expensive and should be taken only in cases of emergency. Inability to pay back these loans can have severe financial implications. This is why it is best to always ensure that you are able to pay back the principal amount along with any lending fees on your next paycheck to avoid having to pay more money in penalties, late fees, and interest.
You can also look at EPP and credit counseling as options if you find yourself in a situation where you are unable to pay back your payday loan. Always remember that you can not be charged or arrested if you are unable to pay back your payday loan.