Taking a payday loan can seem like a simple and instant decision. However, if you default on the loan, things can quickly get nasty. Statistics are stark. According to a research study by which, half of the individuals who took out payday loans failed to pay them pay back in time. This forces the payday lenders to go and find a collection agency to help them retrieve the funds they have lent. However, payday borrowers can end up owing a lot more than they originally took out through roll-overs, default charges and additional interest. The study then went on to show that half of the individuals had been hounded by debt collectors.
Payday loans repayment parameters
Payday loans lenders require that the full amount, plus interest, be paid at a stipulated date, at the end of the month. The options of payment of these kinds of loans are quite limited. They don’t accept checks or to make a call with your payment details to pay back the loan. Instead, the payday loan lender will deduct the stipulated loan amount, including interest, directly from your bank account, a process called Continuous Payment Authority (CPA).
What happens in a case of default on payday loan?
If your bank account balance is empty or the balance is insufficient to cover the repayment amount, plus interest, the payday loan lender will use any means necessary to recover their money. If any of your friends or relatives ever repaid a payday loan for you, the lender will deduct the money from their account.
The amount of interest and charges imposed if you default on payday loan
Payday loan lenders typically impose a fine of between $12 and $20 for late payments. Interest on the loan overdue will always keep attracting interest (typically 1%). This means a debt of $200 will expand to a whopping $360 if payments are not submitted within two months of the default date.
This is where payday loan lenders are never clear about late payment charges. They may take advantage of your situation and impose punitive charges. That’s why you should thoroughly research your payday lenders before getting a loan so you know what to expect should a late payment occur.
The bottom-line is that payday loans are pretty expensive as a trade-off for being able to borrow large amounts on short notice or on a low credit score. Annual interest rates can skyrocket to a mind-blowing 6000% with some lenders. This is too much when compared to an average credit card APR of 20%, which means the longer your debt drags on, the more it will spiral out of control.
Are you able to cancel payday loan payment if you have priority expenses such as utilities, rent, food, and mortgage?
You have the power to stop any payment to payday loan lender if you feel you have priority expenses to take care of. All you have to do is contact your bank to stop the payment. This is according to the Payment Services Regulation Act. You don’t even need to inform the payday loan provider first. Just ensure you give your bank a few days notice for them to be able to effect the cancellation. Otherwise, a late cancellation request may fall through.
Solicit for help if you realize you’ll not be able to repay the payday loan
Instant decision can save you from the wrath and humiliation of payday lenders if you default on a payday loan. There are numerous debt charity organizations like National Debtline that you can contact for help if you realize you can’t repay the payday loan. This organization can educate you about your rights when you’re faced with default on payday loans situations. They can also offer strategies to get your finances back in line.
Have a conversation with your lender if you realize you’re going to default on your payday loan.
A conversation with your payday lender can turn out to be beneficial. They can devise alternative ways for you to pay back the loan. Don’t be afraid to do so, as the OFT’s lending guidelines require that payday lenders treat you with utmost respect when such a scenario manifests. The same law also stipulates that the payday loan provider should provide you with an adequate timescale to pay back the loan.
Note that if you fail to pay back the payday loan after two months of the date of default, the payday loan lender is at liberty to forward your case to a debt collection agency. This is a dangerous and stressful stage, since you will start to receive a series of phone calls, letters, and visits by debt collector to enforce the debt collection order.