If you’ve ever come up short on cash, you’re not alone. 12 million Americans take out payday loans each year, generating about $9 billion in loan fees.
Some of those 12 million people can’t pay back their payday loans online as fast as they would like to, and you might be one of them. It’s okay. We’re here to help.
We know what happens if you don’t pay back a payday loan, and can help you find ways to prevent loan default. You can achieve financial independence with hard work, perseverance, and education. Here’s what you need to know.
How Payday Loans Work
Most people have seen a payday loan storefront or looked online for next day loans when they’re short on cash. While brick-and-mortar businesses used to be the only way to secure some quick cash, there are now thousands of websites promising instant cash loans. Some are reputable, but many are not.
Payday loans are best used in emergency situations only and are not meant as a long-term financial solution. It pays to do your research on the lender you’re considering. Some are much better than others!
Same day payday loans should only be used for true financial emergencies where a quick loan is your only option. Don’t fret too much if you’ve needed help before — about 40 percent of Americans report not being able to cover an emergency of $400.
You will need identification, financial paperwork, and a bank account to receive your payday loan. Don’t be afraid to shop around for the best company. If you feel uncomfortable or pressured for any reason by a potential lender, that’s a sign that you haven’t found the right one.
What to Expect When Applying for a Payday Loan
When you get a payday loan no credit check, you must provide proof of employment through pay stubs or bank records. Most of the time, you write a post-dated personal check to the lender for the amount of the loan plus the interest you will incur.
Your lender will have your personal bank account information, including your routing number and bank account number. They will debit your account on and agree upon day for the amount of the loan plus interest.
If you don’t pay your bad credit loan, they might debit your account further as payday loan default consequences. Avoid overdrafting by paying off your loans as rapidly as possible.
During your loan application and transaction, a lender is required by law to give you all the details — from interest rates to loan terms to possible payment plans.
Don’t be afraid to ask questions or double check answers. Never sign anything you are unsure of!
Find Your Lowest Interest Rate
High-interest rates are typical for same day and payday loans, which can make them tough to pay back if you get further behind financially.
An interest rate of 15 percent with a two-week payback window is ideal, but you’ll often find rates of 40 percent or more. Some payday loans even have compound interest rates of more than 300 percent if you don’t pay them back posthaste. Shop around to choose the lowest possible one.
Sometimes your financial situation gets desperate, and you might be willing to overlook an exorbitant interest rate. Be warned: That’s where the trouble comes in. And there are payday loan default consequences.
If You Owe a Payday Loan, Can You Get Another?
When times are tough, you may think you need more than one payday loan online no credit check to get by. In some states, it is possible to get a second payday loan when you already owe a lender for a similar loan.
We don’t recommend this course of action.
It’s too easy to get caught in a debt spiral, and it’s tough to get a working strategy for how to pay off multiple payday loans. Your interest rate for a second, third, or fourth payday loan will get continuously higher. And you have a much higher chance of being sent to collections.
Talk with your lender if you’re considering multiple loans, and think about alternatives for your urgent cash needs. Banks often offer low-interest long-term personal loans that could help you consolidate your payday loan debt or climb out of a hole.
Pros and Cons of Payday Loans
Like many Americans in a cash crunch, payday loans might be perfect for you in the short term.
You could need extra cash for a medical or dental emergency, or perhaps your car unexpectedly broke down. It’s not ideal, but sometimes people get payday loans to help a family member in financial trouble. We don’t recommend this — but it can happen in a flash.
Payday loans with reasonable interest rates can be the answer if you need quick cash and don’t have a credit card. Maybe you’re getting paid overtime next week, and you know you can cover the bill for the loan.
There are many ways payday loans make sense for some consumers, and they work for millions of people each year.
The drawbacks are high fees, exorbitant interest rates, and an inability to pay them back over time. If you have several urgent short term needs, you may have to figure out how to pay off multiple payday loans.
This can get tricky and can cause a lot of anxiety for the borrower (you). Avoid lenders that charge the legal maximum. A compassionate lender will work with you and have options for interest rates available.
Some people get trapped in an unfortunate cycle of renewing their payday loans so often that they end up paying more in fees than they ever borrowed in the first place. If you’re not careful and financially shrewd, you could end up suffering the payday loan default consequences. It’s also one of the reasons you could be denied for a future loan.
Your best plan of action is always to pay off your loan as early as you can! We’re here to help you and learn more about getting a quick loan without paying too much.
What Happens if You Don’t Pay Back a Payday Loan?
It can be scary when you can’t pay back your loans. But it’s important to restore your financial health as soon as possible.
For most payday loans, your lender will try to cash your check. If the check bounces, you could be subject to hefty overdraft fees from your bank.
Your lender might even try to withdraw incremental amounts from your bank. This could get you in hot water, too — especially if your balance is already low!
Communication is Key
Next, the company who issued your payday loan will start calling you. They will call, text, e-mail, send letters, and sometimes even threaten you. Many lenders are so extreme that it can feel like harassment!
Lenders have also been known to locate your workplace and family to ask for repayment, and to threaten legal action if you don’t pay up. People who take out loans can feel ashamed of this, and will sometimes avoid answering their phones or dealing with their rising debt. Don’t do that.
The worst thing you can do is not communicate with your lender. They need to know if you are at risk of payday loan default consequences, as they could be willing to help. This is why it’s crucial to only select reputable same day loan companies — in person or online — with excellent and understanding support staff.
Sometimes, you can renegotiate what you owe. If you are honest with your lender about your financial situation, they could renegotiate instead of reporting you to credit bureaus or filing a lawsuit. Make sure you get any renegotiation details signed and in writing!
After the manhunt, what happens if you don’t pay back a payday loan is the dreaded D-word: Default.
If your loan goes into default, it will go to a collections agency. There will be more calls, letters, and e-mails — and you will likely get a civil court summons. In some states, your wages could be garnished if it goes that far.
Your credit score will also significantly drop, which will make it even more difficult for you to get longer loans like installment loans. If you have a good credit score before applying for a payday loan, prepare for a more than 100-point drop. Your lender probably didn’t check before they issued your loan, but non-payment default is designed to wreck your credit rating.
The best policy is to avoid default, but sometimes it’s impossible. Payday loan default consequences can include skyrocketing penalties and legal issues. You could also be driven into bankruptcy.
Consolidate Debt with a Personal Loan
You don’t want to get caught in a high-interest debt spiral. And you certainly don’t want to be harassed by loan sharks all the time! Consider applying for a low-interest bad credit personal loan online if you’re suffering from payday loan default consequences.
A banker can look over your financial records and help determine what is the best way to consolidate your debt. You might need a cosigner if your debt is high-risk, but find the right lender to help you. At Bonsai Financial, we have resources to assist you!
Cut Your Spending
It’s not always this easy, but making a plan to cut your spending can help you pay off debts. Some people take a roommate to cut back on rent or bills. Families have been known to make cuts in their vacation and leisure, grocery, or entertainment budgets.
Creating a budget and sticking to it is crucial to financial success. Living below your means is one of the best ways to stockpile savings or pay off debt. Many people cancel their cable bills, refinance their car payments, or find ways to lower their bills in order to pay their debts.
Knowledge and Perseverance are Powerful
It can feel overwhelming to be in a “debt tornado,” especially if you’re not sure how to pay off multiple payday loans. Keep your head about you and communicate with your lender.
Knowing your legal rights and personal responsibilities are also key to your financial success. Knowledge is power, and there’s a way out of the mess you feel like you’re in. Speaking to your lenders, your banker, and even trusted friends or family can reduce a lot of the spirit-breaking stress of crippling debt.
Educating yourself about your financial health and having a plan to rectify your debt can be a powerful psychological motivator. Millions of Americans are in your shoes, and the road to recovery can be long. When the going gets tough, keep going!
Alternatives to Payday Loans
The Consumer Finance Protection Bureau (CFPB) is the government agency tasked with helping educate and advocate for consumers. They recommend searching for alternatives to payday loans, such as small, low-interest no credit check loans from a bank or credit union.
Practical and realistic budgeting is also crucial to your financial success. But we do understand that accidents and financial emergencies happen.
Banks might also offer overdraft protection or waive fees in order for you to pay an emergency bill. Though this is uncommon, it’s always worth a try! You’ll need to contact your bank for a consultation.
A Bright Future for Consumers?
Colorado was the first state to cap payday loan interest rates in 2018. Voters chose to make 38 percent the highest possible interest rate for short term loans. In just their state alone, consumers are expected to save up to $50 million in fees.
Other states have discussed similar measures, and are waiting to see how the loan market in Colorado changes. The vote passed by a hugely positive margin and a market of workable alternatives is expected to crop up in the coming months and years.
We’re Here to Help
Hopefully, you’ve learned what happens if you don’t pay back a payday loan — and some steps to avoid that tough situation. Finding a lender who won’t overcharge you for interest is key, as is getting a plan to repay your loan in a short amount of time.
Bonsai Financial is recognized worldwide as the best place to learn about which short-term loans are right for you.