Defaulting on a payday loan can have serious consequences, including bank overdraft fees, collection calls, damage to your credit score, a day in court, and even a garnishment of your paycheck. Payday loans come with exorbitant interest rates and fees that make it difficult to pay them back. If you can't repay the loan, the account may be sent to a collection agency, which will damage your credit. When you take out a payday loan, you give the lender permission to withdraw money from your bank account for payment.
The total loan amount and any charges are usually due within 14 days or at the time of your next paycheck. If you don't have the money to pay off the loan in full by then, lenders will allow you to continue with the loan but charge additional fees. If the lender charges more than what Washington law allows, the payday loan cannot be enforced. According to one study, 50% of payday loan borrowers don't pay off their loans within two years of taking out the first one.
Writing a check or authorizing the lender to withdraw money from your account gives them permission to take money from your account regardless of what type of funds are in it. Any lender that charges you an additional fee to “renew” your payday loan and make it mature later is breaking state law. Before applying for a payday loan, exhaust all other options such as selling items or borrowing from friends or family members to avoid 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.
Alternatives like Chime, Earnin, and MoneyLion allow users to borrow a percentage of their expected earnings for a small fee and pay it back on their next payday.
