What happens if you are unable to pay back a payday loan?

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What happens if you are unable to Repay a Payday Loan?
In default on the payday loan can drain your bank account and cause debt collection calls. Try to settle the debt as soon as you can.
Written by Liz Weston, CFP(r) Senior Writer | Personal Finance, economics, credit scores Liz Weston, CFP(r), is a personal finance columnist host of"Smart Money," the "Smart Money" podcast an award-winning journalist, and the writer of 5 books on financial matters, among them the best-selling "Your Credit Score." Liz has appeared on numerous radio and national TV shows, including"Dr. Phil, "Today" talk show "NBC nightly news,"" The "Dr. Phil" show, and "All Things Considered." Her columns are distributed by The Associated Press and appear in hundreds of media outlets every week. Prior to joining NerdWallet she was a writer columns for MSN, Reuters, AARP The Magazine and the Los Angeles Times. She shares a home in Los Angeles with a husband as well as a daughter, and a co-dependent golden retriever.




and Amrita Jayakumar Writer The Washington Post Amrita Jayakumar is a former special-assignments writer for NerdWallet. She also published a syndicated article on the millennial generation and money. She also focused on personal loans as well as consumer credit and debt. Previously, she was a reporter at The Washington Post. Her work has appeared on newspapers such as the Miami Herald and USAToday. Amrita has a master's diploma in journalism from The University ofMissouri.





Mar 24 2021


Written by Kim Lowe Lead Assigning Editor Consumer loans Kim Lowe leads the personal loans editorial team. She joined NerdWallet in the last 15 years, after of managing the content of MSN.com which included food, health and travel. Kim began her career as a writer for publications that covered the mortgage, supermarket and restaurant industries. Kim earned her bachelor's degree in journalism at The University of Iowa and a Master of Business Administration from the University of Washington.







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The risk of a payday loan default can lead to bank overdraft fees collection calls as well as the loss of your credit score, a day in court or a garnishment on your pay.
Don't think it can't happen since you only borrowed $300.
"If you have a valid, binding, legal agreement to pay that debt, and you're in a state in which they are able to sue and garnish your wages, you're playing an unwinnable game of chicken, and you'll lose," says Bruce McClary representative of the National Foundation for Credit Counseling.
If you are unable to pay the debt, you can settle the debt for less than you owe or declare bankruptcy if your debts are overwhelming. What can you anticipate.
Bank withdrawals and collection calls
Payday loan lenders don't waste your time when the money you have to pay is due.
They'll instantly withdraw the money from your bank account , if you've given them access in your loan agreement. If the debits fail to take place, they might divide the charge into smaller pieces in an attempt to extract whatever money is within your accounts.
Every failed attempt could result in fees from banks against you. Successful attempts could drain your account at the bank and make other transactions bounce as well as incurring fees.
In the meantime, lenders will start calling, sending letters from lawyers and contacting the relatives or friends who you used as references when you took out the loan. According to Federal law, lenders can only request help in locating you -- they can't reveal where they're calling from, unless asked or explain the situation with respect to your debt to anyone.
Tools for debt reduction that are free to use
NerdWallet can help you stay on top of your upcoming payments and helps you understand your debt breakdown.






Jail time? Yes, but threats are not uncommon.
Failure to repay the loan is not a crime violation. In fact, it is unlawful for a lender to threaten the borrower with detention or imprisonment. Nonetheless certain payday lenders have had success making use of bad-check laws to file criminal charges against their clients, with judges mistakenly stamping the claims.
The Consumer Financial Protection Bureau advises anyone who is threatened with arrest for non-payment to call him or their . It is not a good idea to refuse to comply with an order to appear in court even when the criminal complaint has been wrongly filed.
An opportunity to negotiate
A lender would prefer to get cash directly from you, rather than selling your debts to an outsourced collection agency. Third-party debt collectors could offer just a few pennies on the dollar to buy your debt. If you can, start by offering 50% of what you owe to settle the debt.
"Tell the lender: 'Look, I simply can't pay you and am considering bankruptcy,'" says John Ulzheimer, a credit expert who has worked at the credit scoring firm FICO and credit bureau Equifax. "The moment you begin using the BK word, they become serious because BK means they get nothing."
Make any agreements in writing, and make sure the document states that the balance will be reduced to zero. In official terms you're looking to have the debt "exhausted."
If you don't settle, make sure you know how to deal with debt collectors and which practices are not legal. For example, collections agents are not allowed to call you constantly or make false statements or threats to claim the money you owe.
>> MORE:
The summons to court
If you believe that collection agencies don't have the time to sue for small sums beware.
The majority of lawsuits filed against consumers are currently in small amounts According to Michael Bovee, president of Consumer Recovery Network, a debt settlement firm.
The lenders typically win because consumers don't show up to court, as per a 2020 analysis from the Pew Charitable Trusts. The judge will then issue the default judgment, and the court will then commence to take over the money you owe the collection agency.
"Depending on your state law you could be subject to bank account levies, and even garnishments on wages," Bovee says.
It is never advisable to ignore a lawsuit, says Lauren Saunders, associate director of the National Consumer Law Center.
"Show your case in court and ask them to show evidence that you owe them the money, since they frequently are not able to prove it," Saunders says.
Alternative options to consider if you are unable to pay a payday loan
You should not prioritize paying the payday lender over making sure you have food on the table or paying the rental, Saunders says.
The first thing to cover is the basic necessities:
You may qualify aid with utilities, rent, or food items.
Ask a nonprofit bankruptcy attorney, bankruptcy attorney or legal aid center about the next steps you'll take.
Look for that don't involve the taking of more debt.

It's not worth filing just one small loan, but you may be interested in it if your debts that are not secured -- including payday loans, credit cards and medical expenses total half or more of your earnings.
Don't delay and hope the debt will go away -- it isn't going to happen. "Time never makes debt go away," Ulzheimer says. "Bankruptcy does."



The authors' bios: Liz Weston is a columnist at NerdWallet. She is a certified financial planner and author of five money books including "Your credit score."


Amrita Jayakumar is a former writer for NerdWallet. She previously worked at The Washington Post and the Miami Herald.







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