Default on a payday loan can result in bank overdraft fees, collection calls, damage to your credit score, a day in court, and a garnishment of your paycheck. Payday loans come with exorbitant interest rates and fees that often make it very difficult to repay them. If you can't repay a payday loan, the account may be sent to a collection agency, damaging your credit. In exchange for a loan, you allow the lender to withdraw money from your bank account for payment.
The total loan amount and any charges are usually due in full within 14 days, or at the time of your next paycheck. If you don't have the money to repay the loan in full within the agreed time frame, lenders will allow you to continue with the loan. Additional fees are charged to continue with the payday loan. If the payday lender charges a higher rate than what Washington law allows, the payday loan cannot be enforced.
According to another study, 50% of payday loan borrowers do not pay a payday loan within two years of getting the first loan. By writing a check to your account or authorizing the payday lender to withdraw money directly from the account, you give the payday lender permission to withdraw money from your account, regardless of the type of funds in the account. Any payday lender that causes you to pay an additional fee to “renew your payday loan” and make the entire loan mature later is violating state law. Exhaust all other options you have, including selling items or borrowing from a friend or family member before you apply for a payday loan to avoid the potential consequences of not paying off a payday loan.
By definition, there are few legal remedies that a payday lender can take to recover payments on a payday loan. Paycheck prepayment apps like Chime, Earnin, and MoneyLion are another way users can borrow a percentage of their expected earnings for a small fee and pay it back on their next payday.