Expenses don’t end when you get laid off. You still have to pay rent, credit card bills, and utility bills. If you have an emergency fund, you’re saved, albeit temporarily. But that emergency fund would also end one day and you need to find a source of income.
If you get a job before your emergency fund gets exhausted, then it’s fine. But if you don’t get a suitable job before your fund is over, then you’re in trouble. The easiest solution is to borrow a payday loan and take care of your regular or emergency expenses. You don’t need a stellar credit score to qualify for a payday loan. You don’t need to wait for a long time to get loan approval. It’s so convenient.
However, there is a problem with a payday loan. You can take out a payday loan easily but it would be too tough to get out of it since the interest rate is too high. The average interest rate on a payday loan ranges between 300% and 500%. Needless to say, most borrowers are unable to pay the full amount even after making payments for several months.
What happens to those borrowers who can’t pay off payday loans? How do their lives change after defaulting on payday loans?
In this post, we will try to find out the answers to these questions. So, without wasting any further words, let’s start the discussion.
How does your life change when you default on a payday loan?
This much is definite. Your life would obviously change after defaulting on a payday loan. Here’s how it would change.
- Face additional interest and penalties: The payday loan company would continue to charge interest on the loan even after you have defaulted on it. Moreover, they would impose penalties and additional charges on the loan. So, your outstanding balance would inflate and you would have to owe more to the lender.
- Pay overdraft fees due to ACH debits: Payday loan companies know when the money is due, and they don’t hesitate to initiate automatic withdrawals from your checking accounts. They will withdraw money from your checking account till it’s empty. Once it’s empty, each failed attempt will trigger an overdraft fee, which you have to pay to the bank.
This is like double punishment for you. First, the payday loan company withdraws money from your checking account just because you have given them the access when you borrowed the loan. Now, they are taking advantage of it and taking whatever little you have in your bank account. On top of that, you have to pay a fee to the bank.
- Receive collection calls every day: When the payday loan companies are unable to receive any money from your bank accounts, they assign your accounts to the internal collection department. The in-house debt collection department will call you and send letters for payments. Be prepared to receive collection calls almost every day.
If the in-house collection department fails to receive payments from you, then the payday loan company will assign your account to a third-party collection agency. In that case, the third-party debt collection agency will initiate the collection process.
Let me make one thing very clear. Your life may drastically change if the third-party collection agency doesn’t follow the FDCPA laws sincerely. They can call you during odd hours and weekends. They can threaten to arrest you or send you to jail. They can even call your friends and disclose your debt details to them. The idea is to embarrass and humiliate you in whatever way they can.
Sometimes, abusive and aggressive debt collection agencies call your employer regarding payments. They know that you’ll be utterly embarrassed when your employer comes to know about your debts. This might compel you to make payments by hook or crook.
The best way to deal with these types of collection agencies is to consult a good lawyer and protect yourself. The lawyer can sue those collection collection agencies and help you win a cash reward. .
See also: Why everyone needs a great lawyer.
What to do when you can’t make payments
When you’re in payday loan debt, here are a few survival strategies you can use.
- Go for credit counseling: Contact credit counselors to get help with payday loan debt problems. Explain your debt problems to certified counselors and ask for a solution.
- Contact debt relief companies: If you want to get genuine help with payday loan debt, then contact a good debt relief company as soon as possible. They can help to reduce your outstanding balance or lower your interest rate without preparing for bankruptcy.
- Ask for a repayment plan: Ask your lenders to create an affordable repayment plan for you. If the lender is a CSO member, then you can ask them to offer an Extended Payment Plan. It will freeze your interest rate and allow you to repay the loan in 4 equal installments.
All in all,
It’s easy to get into a payday loan trap due to the high APRs and fees. The best way to avoid this trap is to look for alternatives for payday loans. If you’re in a financial crisis and need money, borrow a personal loan from a credit union. It’s cheaper and more forgiving than payday loans.