Payday loans are personal loans made to individuals on a checking account, with a promise to pay the money back on their next pay day. These loans may range from $100 to amounts in the thousands, depending on the company. However, the interest rates associated with these loans run high, because of the risk involved, which causes many borrowers to default. When this happens, there are several ways in which a lender may still try to collect.
Loan Terms
Payday loans are generally paid back the next time you receive a check from your employer or other source of income. However, because the company holds a check, they reserve the right to deposit the check should you neglect to pay as promised. They may re-deposit the check several times in an effort to collect the money owed, even if you did not give them permission to do so.
Initial Collections
Once you default on the loan, the payday loan company will contact you. They will leave messages, send texts or emails and leave messages with your references, if you listed any. They will also send letters informing you of their intent to collect and giving you chances to repay the loan. At times, the efforts can be aggressive, with some lenders making multiple calls to you at your place of employment or late into the evening at home.
Credit Filing
If you default on your payday loan, it affects your credit. Even though the lender does not do a credit check to extend the loan, the company can still report your account as an unpaid debt to the three major credit reporting agencies. This can adversely affect your credit rating, dragging down your score. Moreover, it looks bad to have a payday lender on your credit file when you try to work with legitimate lenders.
Judgment
If all other collection efforts don't work, the payday lender may try to pursue a judgment against you to collect the monies owed. If the judge rules against you -- and if you owe the money, he likely will -- then you will be required to make a payment arrangement to satisfy the loan. This might end up in a wage garnishment to recoup the amount of the loan, plus collection fees, which can make the amount you owe just that much more costly.
