A woman runs away from a calendar with her payday loan due date listed on it

Why Consumers Should Avoid Payday Loans

Milad Hassibi December 3, 2018

Payday loans have become a popular source of loans for consumers in need of cash quick.

A payday loan is a small loan that is usually “unsecured”, meaning you are not asked to provide any collateral such as a car or home. Payday loans have a reputation for charging consumers aggressive interest rates often above 400 percent.

All credit and finance experts agree that payday loans should be avoided at all costs. But what happens if you have taken out a payday loan and are unable to make your payments?

Payday loans and bank withdrawals

If you miss a payment, a payday lender will not waste a single moment when money is due.A pile of cash next to an emoji in shock of the interest rates on payday debt

A payday lender will automatically initiate withdrawals from your bank account if they are given access to it before issuing you your payday loan.

If a payday lender is unable to collect the debts owed in a single bank withdrawal, they may withdraw smaller amounts automatically until the debt is repaid.

If a payday lender attempts to withdraw funds from your account and the funds are insufficient, you will be charged a bank overdraft fee. Payday lenders will then attempt to contact all your references you listed in the loan application as well to secure payment.

Settling payday debt

A payday lender may hire an outside debt collection agency to collect on your overdue debts. The payday lender will sell off your debts for pennies on the dollar to a third party.

First, start by offering to pay 50% of the total amount due in order to clear the account and prevent your credit score from being harmed.

We strongly advise you tell your payday loan agent that you are considering filing for bankruptcy.

If you file for bankruptcy, the payday lender will get absolutely nothing. This is when you can offer 50% or less of the total amount due in order to clear the debt.

When lenders here the word “Bankruptcy”, most are willing to settle before you file.

Payday loan debt and court

Most lawsuits filed by collection agencies are for extremely small sums of money. A payday lender will have no problem suing you for a small loan of $100. Most consumers choose not to even appear in court for their payday loan debt, which gives the lender an automatic win by default.

Consumers should never ignore court summons especially when it comes to a payday loan. We strongly advise that consumers ask the lender in court to provide proof of the payday loan.

This is because many payday lenders choose not to bring proof with them to court. The Consumer Financial Protection Bureau found that nearly 70% of all payday related cases are dismissed since the lender did not bring proof of the payday loan.

If you fail to appear in court, a lender can initiate property liens, bank levies, and wage garnishment.

Final Note

Payday loans should be avoided at all costs since they often trap consumers in an endless cycle of debt. A loan of just $100 can end up costing consumers $1,000+ over the course of a year.

If you are buried under a mountain of debt and ready for a fresh start, CrediReady can help.

Our nationwide network of trusted and experienced lawyers are prepared to give you a FREE bankruptcy consultation. Take a moment to fill out our inquiry form today to speak with your FREE local attorney and get the help you need today.

Free Credit Score

Get your free credit score now! Get a copy of your most recent credit score.
get your free score

Auto Insurance

Get your free insurance quote now! Save big on auto insurance today!
get your free quote

Vehicle Warranty

Protect your vehicle and you could save thousands on auto repairs.
get your free quote