If you’re in the market for quick cash to get to your next pay day You might be contemplating applying for a payday advance. This could be especially the case when you don’t have the most favorable credit and don’t qualify for other kinds of loans. Although it’s simple to obtain payday loans however, this type of financing can be very costly.
Payday loans are characterized by high interest rates and charges which can make them difficult to pay back. If you don’t repay the payday loan, your account might be redirected to a collection company, which can cause damage to your credit.
What Happens if You Default on a Payday Loan
Inability to repay the payday loan can have many serious consequences, which include:
- Additional charges and rates of interest depending the location you reside in and the lender you select you could be charged additional costs if you’re not able to pay off the loan you received from payday. These are known as non-sufficient funds (NSF) charges and are charged when you don’t have the funds needed to cover an expense.
- Debt collection process The lender will try to collect the payment on your behalf for a period of 60 days. If you’re not able to pay them in this period then they’ll likely go to an outside debt collection agency. The agency to contact you and write mail on a regular basis until they get the cash. You’ll notice that their collection strategies are more effective than the efforts of your lender.
- damaged credit score If you pay back your payday loan in time the credit score should not be affected. However when you fail to pay your loan and the credit is put in the control of a collection agency there will be an increase in your score.
- Notice of court In the event that you’ve fallen behind on a tiny amount there’s a good chance that the collection agency will summon you to the court. Based on where you reside the process could lead to the encroachment of liens on your property or perhaps wage garnishment.
- A challenge in securing financing for the future A payday loan default could remain for a long time on the credit report for as long as 7 years, it is possible that you might be unable to get accepted for any other loans down the future.
- Affidavits of arrest It is not legal for lenders to threaten to put you in jail or arrest however, they can do it regardless. If you are the victim of this kind of threat, you should be sure to contact the office of your state attorney general immediately.
How to Rebuild Credit After Defaulting on a Payday Loan
It’s not a secret that being in default with a loan for payday may result in a lot of anxiety and uncertainty regarding the future. However, there are options to improve your credit and ease the burden of the problem. Here are some suggestions to aid you.
- Pay on time If you do not have enough cash to pay on your debt it is possible to lower your expenses or get part-time work or a side hustle. It is also possible to get professional assistance in the form of credit counseling and a debt management plan (DMP) as well as debt consolidation.
- Be sure to pay bills in time It’s true that even one late payment can damage your credit. It’s therefore essential to pay your bills in time. If you’re concerned that you’ll not remember to pay, you can sign up for automatic payments or schedule reminders on your calendar. This will make sure that the mortgage credit debit cards, loans for cars, and other debts are paid on time way.
- Take a look at Your credit use ratio This is your credit utilization ratio represents what you pay for the credit you’re using compared to your available credit you have. Your credit utilization shouldn’t be greater than 30% and the lower it is, the more favorable. Maintaining your spending in check and keeping your having your balances at a low level will help you reach that goal.
- Make sure you check your credit report frequently You should make it a habit to keep an eye on the accuracy of your credit report. You can visit AnnualCreditReport.com and get an annual free copy of your Experian, Equifax and TransUnion reports. You can also obtain the Experian credit Report for free for the next 30 days after signing in. Be aware of any negative marks that could hurt your score.
You Can Move Forward After Defaulting on a Payday Loan
If you fail to pay back the payday loan then you’ll have to do everything you can to restore your credit and overcome this financial obstacle. However, there’s some silver linings. After experiencing this situation you’ll probably be a better borrower, and go out of your way to avoid similar financial troubles in the near future.