Payday loan presupposes that a borrower provides a post-dated check with the total amount of loan plus interest and fees indicated there. Another option that is more popular now – the check with access to a back account. The latter is more convenient in all senses. As soon as the loan term expires, a lender withdraws the money either from the borrower’s account or cashes the post-dated check. However, there happen situations when there are not enough funds to repay and this is where problems start.
- Payday loans generally range from $100 to $1,000 and they are pretty expensive in terms of interest rates.
- Commonly lenders charge up to $25 ($10 is an average) for every $100 borrowed, which leads to 3-digit APR rates.
There are a lot of customers who fail to keep up and unable to repay in time. They opt for roll-overs and extensions, making the debt even bigger with every new loan and having to comply with even higher interest.
- Generally, payday loans are provided for the period of 2 weeks until the next person’s paycheck.
In the majority of states, however, loans cannot be extended longer than 90 days. The main reason behind indebtedness and default repayment is that people apply for the loans they actually are not able to afford.
When a person understands that he or she won’t make it in time, a roll-over option is taken into consideration. In many states it is legal practice. A person gets a new loan under new interest and this can go on and on until a person is head over heels in debt.
When a person fails to repay a loan, it gets the status of default. In case of payday loans this is even more serious as it takes quite short time for the things to get pretty bad. Payday loans are expensive unsecured loans that are recommended to apply in emergency situations when cash is needed urgently; otherwise it can ruin your financial state very easily.
- Things are a bit easier for the residents of the states where payday loans are restricted by usury caps and lenders are not allowed to charge more that the stated amount of APR.
- The policy of these states indicates that all the attempts to make a borrower repay a defaulted loan will be illegal, provided that interest rates do not comply with the law. The loan gets void and a lender will be eligible to get just the principle loan amount.
- In some states the law presupposes that a borrower should follow an instalment plan, in case all the roll-over periods have come to an end and a borrower claims unable to repay. One of the options is to apply for an Extended Payment Plan.
Provided that a payday lender is a member of the CFSA (Community Financial Services Association of America), there is no way for them to make a customer repay by force. Members of CFSA are not allowed any such practices and you can have the time of the next 4 payday loan terms for repayment. However, it should be taken into consideration that the application for an Extended Payment Plan can be executed only once in a given year for each lender. Plus, state laws should be taken into consideration.
For those lenders that are not members of the CFSA the case is decided with regards to the state laws of the state in question. For more information it is helpful to check the website of the local attorney general.
In case you live in the states where payday laws are more lenient to lenders and allow the latter more freedom of operation, it is recommended to deliberate before applying for such a loan. In case of default repayment, a person can get into worse financial trouble than he was before.
In case a person defaults on a loan, the first thing for a lender to do is to get the money back either by trying to cash a post-dated check or by withdrawing the cash from the account. However, when there is not enough cash on the account, it will result in the bouncing of a check.
For a borrower it is fraught with the non-sufficient funds (NSF) fees. They are charged by both bank and payday lending company and very frequently the sums are very feasible.
Debt collection process usually is carried out either by lenders themselves or by debt collection agencies. A borrower is likely to be notified by mail and by phone and in some cases these attempts can be pretty aggressive. However, according to the Fair Debt Collections Practices Act (FDCPA) a person can stop it by sending a letter known as a cease and desist notice and, more officially, a “Cease Communication Demand Letter“. After a lender or an agency receives it, they are no longer authorized to bother a borrower in such a way.
In some states lenders ask borrowers to sign an “Assignment of Salary and Wages”. This document gives a lender the permission to apply for a borrower’s employer in order to get the information about the salary and also to get the loan deducted directly from the paycheck on the due day.
In certain cases the methods of collection can be pretty aggressive and a lender can sue a borrower for default repayment. However, one shout taken into consideration that failure to repay a payday loan is not a criminal offence and lenders have no right to threaten a person with arrest or imprisonment. The worst case scenario is that a person will be forced to repay the principle loan amount in the end; however, there will be no strict measures that some lenders can frighten one with.
For more information on the subject one can visit the website of the Consumer Federation of America – Paydayloaninfo.org. This is the most complete and reliable resource in the respect of lending and it is a great advisory board to find out how to solve indebtedness problems.