5 Ways Defaulting On Your Payday Loan Could Damage You
Need money today? Quick cash loans, like payday loans, are promising options when emergency situations arise and you need cash badly.
The pros? They are fast and easy. You don’t have to obtain an impressive credit score to qualify. And since they are designed for emergencies, online lenders won’t make you wait for days or weeks to get your loan application approved. You can have your borrowed money in the palm of your hands within hours. Seems like a great deal?
But every good offer has a catch. Repaying a payday loan can be damn expensive. The interest rates for small amounts are high. Not to mention the added charges for penalties, which may hurt your credit score and put you in a daunting cycle of debt.
If you’re thinking about getting a payday loan, make sure you can repay the full amount on the agreed date. Or else, the consequences will hunt you, hurting the things that truly matter.
When you delay or default on your payday loan repayments, it can cause small to severe damages to your:
1. Savings: You’ll pay higher debt
Paying $1000 for a $250 initial loan you took 4 months ago is not impossible.
The longer you go without settling your payday loan, the higher your owed money will be. The culprits here are high-interest rates and penalty charges for nonpayment that go nothing but up. In the event that you can’t pay the amount and the fee when it turns overdue, lenders, in many cases, add another fee to “renew” that advance and allow extensions (usually within a week or two). But more time to pay also means more charges. Lenders are taking risks on you and they demand to be compensated for taking those risks.
2. Creditworthiness: Your credit score will drop
Your creditworthiness is determined based on your credit score. The lower your credit score, the more difficult it is for you to get a credit card, a personal or business loan, a mortgage, and other privileges in the future. If you default on your payday loan repayment payment, it’s fair enough to expect your credit score to drop.
3. Reputation: You’ll be put on the blacklist
Some lenders report unpaid debts to the credit bureaus. While some don’t, they could still flag your name in their proprietary system, used by other payday lenders in the country. Here, you’ll be regarded as an elevated risk and you could get banned from taking out other cash loans.
4. Peace of mind: A debt collection agency will go after you
When a borrower defaults, the lender usually tries to sell the debt to a collection agency, which is now responsible for claiming the unpaid dues. These agencies are notorious for using intrusive methods of getting your loan payment, like bugging you at work or home and calling your family and friends to ask for payment, which can be quite embarrassing.
5. Freedom: You could get sued
In most cases, quick cash loans are under $300, and chances are the online lender won’t come after you in court. You’ll just have to deal with a harsh debt collection phase and write the loss off as a bad debt. But just because it rarely happens, doesn’t mean it’s impossible. Your lender still has all the right to take legal actions in order to collect the overdue amount.
If the court proves you guilty, you have no choice but to spend unnecessary time and money on a situation that could’ve been prevented. You may even shoulder lawyer fees which may be much bigger than your initial repayment amount. It’s also possible to risk some of your assets to pay off the loan if and only if the court judgment calls for it.
Author Bio: Carmina Natividad is a resident writer for QuickCash, an Australian-based business, providing short-term cash loans for your borrowing needs. She is passionate about writing articles regarding personal finance and money hacks.