Defaulting on a payday loan can have serious consequences. Bank overdraft fees, collection calls, damage to your credit score, a day in court, and a garnishment of your paycheck are all possible outcomes. Though you can't be arrested for not paying a payday loan, if you ignore a court order to appear, a judge can issue an arrest warrant. Defaulting on a payday loan occurs when you don't pay it back on time and miss multiple months of payments.
Your loan may then be sent to a debt collector who will contact you to pay the loan in full. This is when many borrowers start to worry about how to pay off payday loan debt. If you close your bank account and default involuntarily, you'll still be responsible for compound interest and late fees. To avoid this, set up an ACH transfer on the loan due date each month. This will send your loan to you and deduct it from your account on the next payday.
Defaulting on a payday loan can have a devastating effect on your credit score and make it difficult to rebuild. Depending on the lender, repayment can take anywhere from two to four weeks. Meanwhile, the outstanding balance may increase as fees, interest, and penalties are added. Payday loans come with exorbitant interest rates and fees that make it hard to repay them. The average APR for a payday loan is greater than 500%.
If you can't repay the loan, the amount you owe can add up quickly. Each time the payment for insufficient funds is returned, your bank will charge an insufficient funds fee that will further put you in debt. By writing a check or authorizing the payday lender to withdraw money directly from your account, you give them permission to withdraw money regardless of the type of funds in the account. If you don't repay your loan, you are in what is known as payday loan default. This will lead to fees, financial charges, collection calls, and damage to your credit score. Many state laws require payday lenders to offer extended repayment plans (EPP) that allow you to repay your loan for a longer period of time. DebtHammer offers content, calculators, tips and repayment programs for those struggling with payday loan debt.
Taking out several loans in a year is common as borrowers take one each payday to pay the last one or other bills. After defaulting on a payday loan, it's important not to default on other financial commitments.