When Fast Payday Loans Lead to Slow Repayment Cycles
The country can’t seem to make up its mind about fast payday loans. While numerous financial experts and legislators warn people against getting them, the borrowing options for some are few. Until traditional financial institutions jump into the lending sector that lends money to borrowers with low or no credit scores, many people must turn to fast payday loans. But, when fast and easy payday loans lead to slow and hard repayment cycles, borrowers remain in debt for years.
Payday Loans are Easy and Fast to Get and Hard to Pay Off
Finder.com reports that it’s easy to get into trouble with a payday loan because they are easy to get. Today, you can request one in person or online. All you need is identification, a source of income and a checking account. The lender will allow you to borrow a specific amount for a fee. If you’re requesting the extra funds in person, you’ll probably need to give the lender a post-dated check to repay the funds. Online processing usually requires you to give the lender permission to withdraw the amount from your checking account on a certain day.
Easy payday loans range in amount from as little as $100 to as much as $1,000. These loans frequently come with annual percentage rates, or APRs, that are around 400 percent, making it more likely for a borrower to spin his or her wheels just paying the interest without making a dent in the principal loan balance.
Before borrowers default on this type of loan, most attempt to make it right by rolling over the loan. Many payday lending companies permit a borrower to extend the terms of the original loan or roll it over into a new one. But, this option typically comes with a fee to do so, resulting in slow and hard repayment cycles.
What Happens When Fast Payday Loans Are Not Repaid on Time?
When a borrower defaults on a payday loan, the lender will attempt to withdraw the funds automatically from their checking account. They may try to take out smaller amounts to receive a partial payment. As they make these attempts, the bank may charge overdraft fees, causing the person to sink further into debt. When a lender isn’t paid, the company’s collections department will start contacting the delinquent person to persuade him or her to pay.
CNN Money reports that arresting people or threatening them with legal action over unpaid debt is illegal. In rare cases, unpaid debts can lead to jail time, but you’d have to defy a court order in reference to an unpaid debt for this to happen. Despite this, in Texas, payday loan companies are using the court system when borrowers fail to repay their loans.
Ann Baddour, the director of the Fair Financial Services Project at Texas Appleseed, said, “In addition to their outrageous rates and lending practices, payday loan businesses are illegally using the criminal justice system to coerce repayment from borrowers.”
While only a small percentage of delinquent borrowers wind up in jail, the threat of criminal action is an effective way to get borrowers to repay easy payday loans. To get around laws that prevent people from going to jail for debt, payday loan companies use bad check and theft by check laws, arguing that past due borrowers are committing theft or fraud.
Contact the Lender to Negotiate a Loan Settlement
Payday loan companies may work with you to negotiate loan installments if you’re not able to pay the money back on time. This may involve a long term financial arrangement, but it’s better than the company taking you to court. Keep in mind that lenders would prefer to collect what you owe from you directly rather than proceed to the next step, which involves selling your debt to a third-party debt collector.
John Ulzheimer, a credit expert, said, “It’s not inconceivable that third-party debt collectors are paying 3, 4, or 5 cents on the dollar. That makes lenders’ first priority to collect the debt themselves. The second option is to see if they settle with you directly for some amount of money. The third is outsourcing to a debt collector.”
Professional debt collectors can be especially nasty. They may call you 10 times in one day about the debt that you owe. These are the guys who threaten to sue, and they may even visit you at work. A professional debt collector will use the threat of a negative mark against your credit history to encourage you to pay.
You Could See the Inside of a Courthouse
NerdWallet states that when it comes to fast payday loans, some borrowers tend to think that these lenders won’t bother to sue for a small amount, but this is not generally the case. The Consumer Recovery Network’s founder, Michael Bovee, confirms that almost all consumer lawsuits are for relatively small amounts of money. He said, “I’ve seen lawsuits for under $500. Even Capital One sues for less than $500 these days. I see those regularly.”
Lenders often win these suits because the borrower fails to appear at court. Most don’t show up in court because they don’t know how to handle it. When the defendant fails to show, the judge of the case will generally enter a summary judgment. This lets the court begin to collect the funds owed to the lender on their behalf, resulting in aggressive legal action. It will depend on your state, but if this happens to you, then you could face property liens, wage garnishment and bank account levies. If you’re summoned to court, be sure to show up. The results are often less devastating.
When to Seek Advice from a Credit Counselor
When borrowers default on fast payday loans, they should seek advice from a credit counselor. Lauren Saunders, the associate director of the National Consumer Law Center, said, “You should not prioritize paying the payday lender over putting food on the table or paying rent.” With their help, you may be able to work out a payment plan with the lender, one that will allow you to pay what you owe while making sure that you’re able to cover the necessities.
If you strike an agreement with the lender, make sure that you obtain the details of the agreement in writing. Also, verify that the document confirms that your payday loan balance will be zero once you’ve complied with the terms of the payment plan.
You Can Avoid Slow and Hard Repayment Cycles
Fast and easy payday loans lead to slow and hard repayment cycles when borrowers fail to repay the loan by the due date. If you need money, make sure that you can repay it on time before turning to payday loan companies. Then, establish a savings account to avoid the need for a quick loan in the future.