Payday loans are similar in many ways to cash advances. They come in small amounts and generally have short-term maturity rates. When you take out one of these loans, you agree to pay back the amount you borrowed by the time of your next pay period cycle (hence the nickname “payday loans”).
These loans are usually taken out when people are struggling financially and coming up short in meeting their bills each month.
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Defaulting on a Payday Loan
If you are unable to pay back the amount you borrowed by the time of your next paycheck, you will have to default on your payday loan. When you default on the payback of a payday loan, it can be a tricky situation to work yourself out of. Generally speaking, if you default on the amount you owe to the lender, you will be reported to a check reporting bureau. What happens at this agency is similar to what happens at other major types of credit reporting bureaus.
The defaulted check will reported to the bureau as an unpaid debt on your part. This will remain on your record and can negatively influence your ability to obtain other types of loans from different lenders in the future. For instance, some lenders will search the check reporting bureau’s database before giving out loans. If they see your name flagged, they may opt against providing you with a loan. And in some cases, lenders may report the unpaid debt to major credit bureaus, which can negatively impact your credit and FICO ratings.
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It’s also possible for payday loan lenders to garnish your wages in their efforts to retrieve the funds you owe them. A wage garnishment is granted by a court order, and it gives the lender the legal right to deduct their payments from the wages you receive from your employer. Garnishments will continue to be taken out of your salary until the total of your debt has been repaid to the lender. The amount of your wages that is subject to garnishment is based on a percentage of your monthly disposable income. The garnishment will be implemented against you through a formal “debt collection lawsuit.”
Repaying the loan is the simplest way to have your name removed from the bureau’s list. Debt consolidation is another option to consider if you cannot immediately repay the total amount you’ve borrowed and fees and additional loan payments are piling up. When you consolidate the payments on multiple payday loans, you will only have to deal with one bill each month for the total amount you owe. If you agree with your creditors on a lower overall repayment amount, then your monthly bill will be reduced even further, and you will be able to pay off your debt in a shorter amount of time. There are many debt consolidation companies in business today that you can contact, or, if you prefer, you can handle the negotiation process entirely on your own with your lenders. Taking steps like this will get you on the road to regaining control of your finances and living a debt-free life.