How to Understand a Payday Loan Default

Many consumers who have taken out a payday loan have experienced a payday loan default. With that being said payday lenders are notorious for charging outrageous fees and interest and payday loan companies can receive an APR of 36% or more. A number of lenders may offer extensions or may be willing to negotiate a bills due date, nearly all will penalize a missed payment by placing a loan in default and most will take legal action against the client.

Therefore, the answer is yes, you most likely will be sued and the courts will set a wage garnishment up to 40% of the client’s paycheck. Many individuals in this situation will turn to some form of payday loan consolidation.

But these lenders are not able attach a lien on your primary residence, retirement income or any child support revenue. Money can only be recovered by the payday lender against the home of the defaulter only if you sell your house. When a client defaults on these loans it is a civil offence and there are no criminal actions against the defaulter. Some collectors have threatened people with jail time and this is false.

Since nearly all the amounts of loans that are in default are so small the lenders generally do not pursue the lengthy and costly process of a lawsuit. But again some will take any measures needed to get their money. Nearly all loans that are in default are assigned to credit collection agencies who aggressively try to recover the money through letters, and calls.

The main reason that payday companies even exist, are to attend to help clients that may have difficulty getting loans from traditional lenders or need fast cash. For this reason, payday loan companies take on a much greater risk and pass that risk on to the borrower in the form of a high APR and fees.

Payday borrowers might have emergency situations to where they need immediate help, and they may not be in the position to borrow money from family or friends. As well they may need money to get from one pay day to the next.

Part of the approval process for a payday loan, is that the borrower maintain an active checking/savings account at the time of applying for the loan. This is to ensure easy repayment, by ensuring the lenders receive their payments (including APR) by the time of the borrower’s next bank deposit from their paycheck.

In the event you are not able to make the repayments, according to federal and state laws, payday loan companies CAN legally pursue remedies of the loan which includes filing a lawsuit against you. Payday loan businesses have been under intense scrutiny recently for excessive fees and in some instances these charge up to three times the loan amount to be paid back. 

In the event you find yourself with a payday loan default or struggling to pay down your payday loan fill out the form on the right or call us at 866-928-9177 and let us help you.