Most payday loan companies will try to collect a debt through any legal means. However, it is rare for creditors to take away a borrower’s car or property. A payday loan is usually paid back in one lump sum on your next payday or within four weeks. If you can’t repay the loan when it’s due, you may be charged additional fees, or your account may be closed. What would happen is if you couldn’t repay the loan, let’s say it was $100 and say that we were lending you fifty dollars for two weeks.
How Payday Loans are Supposed to be Repaid
After the borrower applies for a loan, the lender chooses to approve or deny the transaction based on the borrower’s credit and employment information. If the lender approves the loan, the borrower must repay the loan according to the agreed-upon payment terms (usually two-to-four weeks). You (or your employer) submit a payday loan application to an online lender. At the end of your pay period, money is automatically withdrawn from your account and sent to the site, which solves its repayment.
If we lent you fifty dollars for two weeks, we would give you fifty dollars and say that at the end of the two weeks, you should pay back $55.
If There’s No Money to Pay the Loan
If you can’t repay the loan on your next payday, you may be charged additional fees. If your employer has automatic deductions from your paycheck, it may also become problematic. If you have to borrow from emergency money to pay the loan or have no money left and still cannot afford to pay the loan, it could become a financially harmful situation. : If the borrower cannot repay the loan, they must give the lender a written promise to repay the loan. (This promise is called a postdated check). If the borrower stops sending checks to the creditor, they can be charged with check fraud and fined heavily. It is doubtful that a creditor would take legal action against a borrower in this situation.
Interest and Сharges While the Money is Overdue
Payday loan interest usually carries a fee, and it is about $10-$15 per additional day of the loan. If you commit not to pay back on time, additional fees are added to your account balance’s original value. The longer the borrower takes to repay the loan, the more interest and charges add up. A borrower’s use of payday loans can become costly quickly.
Options if You Cannot Pay a Payday Loan
If you have only a few dollars on your account and no emergency fund, you may want to consider borrowing small amounts from friends or family members. It is usually much cheaper to borrow money from people you know than from any online payday loan service. It is always helpful to speak with a counselor during an economic crisis. A counselor can help you plan how you can start paying off your debts and give you ideas for how to receive financial assistance.
One option would be to roll the loan over for another two weeks, and if you’re doing a rollover, it increases the interest a little bit, and we replace the principal you owe. We take away the principal. If, for example, you paid back forty-five dollars, and you did a rollover for another two weeks, you might owe somewhere around $55 or $60 or $65.
What Happens When you Default on a Loan?
Defaulting on a loan can get ugly. If your account balance significantly exceeds the fee, the lenders have the right to report you as delinquent. Reports, significantly those damaging for your credit history, may affect your ability to get a job because the employer may need to make a credit inquiry after accepting your application for a job.
When a borrower defaults on the loan, the lender is likely to turn it over to a collection agency. The borrower may get contacted by several collection agencies, but the lender may have already sold the agency’s debt that reaches the borrower first.