What Happens If You Owe a Payday Loan and Don’t Pay It Back?
Payday loans carry many benefits. Almost anyone can be approved. You receive your money quickly. No matter what your credit rating is, payday loan companies will be one of your best possible options. That said, the key to applying and receiving a payday loan is knowing you can repay it. The interest rates are what they are. The costs can add up quickly.
So what happens if you owe a payday loan? Here is what would happen if you don’t pay back the payday loan:
1. How Payday Loan Repayment Works
Many first time borrowers are worried about what happens if you owe a payday loan. After you borrow an agreed-upon amount in the form of a payday loan, you agree that on a specific date the amount will be repaid with interest through a pre-approved withdrawal from your bank account.
It is your job to ensure the money is in your account to cover this repayment. As long as it is, there are no issues. Chances are though that you’re here either because you haven’t or cannot repay a payday loan.
Every year, it’s estimated that more than 2 million Canadians use payday loans. A small percentage of these loans are not paid back in time. It isn’t uncommon. Payday loan companies are used to dealing with delinquent loans and have a process on how to handle them.
2. NSF Fees And Repeated Attempts
If there isn’t enough money to cover the repayment, you will be hit with an NSF fee from your bank. That’s the most immediate repercussion. From there, a payday loan lender will attempt again to procure payment. Every time the amount isn’t there, you will be hit with NSF fees at the discretion of your banking institution.
3. Talk To Your Payday Loan Service
Payday loans don’t want to put you through hell. Like any other lender, their objective is to get their money. That’s it. If you call them beforehand and let them know you don’t have the funds, they can arrange a repayment plan or even re-schedule the date on which they will collect.
As soon as you know you won’t be able to cover a repayment, don’t wait to call them. Make contact, be honest, and ask them for accommodations.
4. They’re Going to Hit You With Fees And Interest
This is why people are warned about payday loans. When you can’t pay them back, the fees usually can be quite heavy. The laws vary province-by-province. Different lenders have different rules. Many usually charge a fee right off the bat when money can’t be collected.
Fees can accumulate, just like your interest will. Every day, you add more money on top of what is owed.
5. Why Payday Loan Fees Are So Much
Payday loan fees are high because of the risks that come with this type of loan. Payday loan companies do not require you to submit your credit report. All they ask is to prove your employment, submit some financial records, provide proof of address, and to have a bank account.
It’s a very low bar. A payday loan service also does not ask for any collateral to be put up. The result is a high-risk loan with above-average late fees and a tough interest rate for some.
6. A Payday Loan Service Can Submit Your Case to a Debt Collection Agency
At a certain point, if you haven’t repaid your payday loan, it is very likely the lender will pass your case to a debt collection agency. At this point, it will start to impact your credit rating and cross the line into your personal life.
A debt collector may start to contact you by phone, email, by letter, and may try to contact you at work. It’s an unfortunate situation but once a debt collector’s got you, there’s not a whole lot you can say to a payday lender. It’s out of their hands at that stage.
7. Will A Payday Loan Always Affect My Credit Rating?
Once your payday loan repayment case is given to a debt collection agency, it will likely be included on your credit report. That said, applying for a payday loan does not affect you. Assuming you pay your loan back on time, a payday loan should not affect your credit score whatsoever.
8. How Far Can A Payday Lender Go?
A payday lender will start with a debt collection agency but that’s not where they have to stop. They will declare it on your credit report as a means of speeding up collection of the amount owing. From there, a payday lender can sue you for the debt owing. They could seize your property or assets to collect the debt. They can even go to the courts to receive permission to garnish your wages.
9. Can I Go to Jail for Not Paying A Payday Loan?
No, you will not go to jail because you cannot pay back a debt. In this case, that applies to payday loan services. As evidenced though, it can affect your personal and professional life, negatively impact your mental and physical health, and result in some very serious consequences.
