Defaulting on a payday loan can have serious consequences, such as bank overdraft fees, collection calls, damage to your credit score, a day in court, and a garnishment of your paycheck. The lender may even send your debt to collections. In the end, you may owe the amount you borrowed, plus the fee, overdraft fees, returned check fee, potential collection fees, and potential court costs if sued by the payday lender or collection agency. Payday loans are short-term loans that must be repaid in full on the due date.
Lenders don't have to lend the maximum amount and are likely to consider your income when deciding how much to lend. However, due to their high interest rates, these loans should be taken with caution and repaid as quickly as possible. If you need help with a payday loan, the best thing to do is talk to a credit counselor or try a payday relief program. Sixteen states and the District of Columbia have implemented provisions limiting interest rates on payday loans to 36%, while other states have imposed other lending restrictions.
It's important to be aware of the dangers associated with payday loans, such as high interest rates and potential for default. If you apply for a payday loan for an emergency, do your best to return it on time and avoid renewing it. The CFPB estimates that 80% of payday loans are refinanced and 20% end up in default. Defaulting on a payday loan can stay on your credit report for seven years and almost eliminates you from borrowing in the near future.
Payday loans are illegal in several states, so be sure to review your state's laws before exploring other options.