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Will your payday loan debt take you to court?

Payday loans are popular among people in America. Most of the people prefer to take out a payday loan when they run out of money. Some people consider this loan to get out of their financial difficulties. Payday loans are popular among people because it is a fast cash loan.
The loan can be borrowed without a credit check. Even people with bad credit can get easy approval for a payday loan. But, defaulting on payday loans can be stressful for your financial health. Defaulting on a payday loan can bring many adverse consequences including bounced checks, automatic withdrawals, collection calls, and last but not the least a lawsuit against the borrower.

Though the payday loan comes to your rescue when you fall short of cash, but you have to pay it back by your next payday.

If you don’t repay the loans on time, they can turn into a nightmare. Because payday loans come with a high-interest rate. Thus, once you default, you will start accumulating the interest fast.

Can payday loans take you to court?

The answer depends on the status of the payday lenders in your state. If the lenders are legal (licensed payday lender), then they can file a lawsuit against you for the unpaid loan. The lender can file a case and win a judgment against you. After that, you will get a court order for repaying the loan.

However, the lenders can’t take the borrower to the court for an unpaid loan if a payday loan is not legal in the state where the borrower lives in. Most of the online lenders are illegal and can’t take the borrower to the court since they are illegal lenders.

Still, a borrower is liable to repay the loan.
However, there are some consequences that you can expect if you default on your payday loan. Before knowing what happens when you default on your payday loans, you should know the payday loan terms.

Here you go:

Payday loan terms

Payday loans come in a small amount ($500-$1000) with a high interest rate. The loan should be repaid with the borrower’s next paycheck.

To get the cash advance, the borrower needs to provide proof of employment and a checking account with money in it.
The storefront payday lenders need to have a license to operate as payday lenders.
If loan payments cannot be completed on time, the loan goes into default automatically. However, online payday lenders usually don’t have licenses and they are illegal in many states in the US for providing the payday loan.

The lenders can hold the borrower’s paycheck to collect the payment including the interest. The lender can pull the amount with interest out of the account if the borrower fails to repay the debt within time.

What happens if you default on a payday loan

If you can’t repay the loan with your next paycheck, then you can expect some serious financial blues.

Here’s what happens if you default on a payday loan.

Automatic debit from checking account

Once you default on the payday loan payment, the lender can withdraw money automatically from the borrower’s checking account to collect the money that is due. Usually, they make a single debit for the lump sum amount. They try to garnish as much as possible from the account.

The payday lenders can sell the debt to the collection agency

The Federal law allows the legal lenders to sell an unpaid loan to a collection agency. Once they do so, the collection agency starts attempting collection from the borrower. However, the collection agency requires to send letters and make calls to the borrower for the money. They are not allowed to give out any information related to the debt to others. They are also not allowed to disturb the borrower’s relative, friends or colleagues for the money.

The lender can file a lawsuit

Lenders can’t prosecute the borrower for the debt, but they can summon the borrower as a defendant in a civil lawsuit. The borrower can receive a court order for the unpaid debt.

The lender can scare you by referring to the criminal court

Payday lenders are not allowed to take the borrower to the criminal count. But still, they scare the borrowers by threatening jail-time illegally. However, the borrowers have the right to make a complaint to their state attorney general against the lender for the threatening.

What a borrower should do to get out of payday loan debt

There are many ways to get out of payday loan debt. Below are some solid ways you can try to get rid of your payday loan debt.

Talk to your lenders

You should initiate a face to face meeting with your lender to explain the financial hardship. Request for an extended payment plan (EPP) so that you can repay the loan.

Initiate a settlement

You can request your lender for a settlement offer to avoid a lawsuit. Negotiate for the best price by explaining your poor financial situation.

Lastly, though the lenders can’t take you to the criminal court, yet they can sue you for the unpaid loan. However, the borrower shouldn’t miss the court date and bounce checks to lenders. Otherwise, the borrower can be arrested.
To avoid this kind of hassle, try to avoid a payday loan or cash advance. Save money and create an emergency fund to avoid taking out a payday loan.