How Do Payday Loans Work And What If You Don’t Pay?


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More and more private borrowers and legal entities are using microcredit services from banks and microfinance organizations. In the event that for some reason it is impossible to pay off the debt on a payday loan and the case is delayed, a tense situation arises with many questions. It is better to understand the consequences in advance and develop a plan of action.

With the “competent” behavior, the non-payment of the loan is not a disaster. On the contrary, it is often more profitable to forego huge monthly payments and wait for the process. During the trial period, the amount owed is determined and no more interest is charged, at least the information at Directloantransfer says. The schedule for the repayment of this amount must be negotiated with the bailiffs, who are almost always willing to compromise (if you prepare properly for this phase).

Working principles of payday loan

Payday loans are short term loans that were originally intended to get people up for their paycheck. The money will be deposited directly into your bank account. At the end of the month, you pay interest and fees in full. If you fail to pay back your payday loan liabilities, you will have to collect the debt.

However, you can increasingly take out payday loans for longer periods of time, usually three months (even longer payday loans are available) and repay them in installments. What all of these payday loans have in common is that they are expensive and short-term and often small. Usually, you have a payday loan to pay off your loan and interest. Although some payday lenders allow you to choose a repayment period.

A payday loan is expensive and can make your situation worse if you cannot afford to pay it back on time. You should think carefully before opting for a payday loan. During the year, the average annual interest rate can be as high as 1500% compared to 22.8% per year for a regular credit card. Payday loans are limited by law as per the rules of the Office of Financial Conduct. The rules limit the amount of interest and late fees you can charge.

Someone who has taken out a payday loan for 30 days pays no more than £ 24 in fees and charges for every £ 100 borrowed. If you fail to pay on time, the maximum late payment fee is £ 15 plus interest on the amount you borrow.

Before agreeing to a payday loan, many lenders ask you to set up a pre-payday recurring payment, also known as a Continuous Payment Authority or CPA. This allows you to collect the claim directly from your bank account using a debit card on the due date. It can be convenient, but it is also risky. As a result, you may not have enough money in your account to pay other bills like mortgage, rent, or other important expenses like heating or groceries. However, doing so can cause the overdraft limit to be exceeded, resulting in bank charges. If you think the CPA is not giving you enough control, ask the lender if there are other ways you can do it. You can cancel the CPA at any time even though you still owe the debt. So you have to pay it back in another way.

What if you can’t pay your payday loan?

Consequences of non-payment of the loan

The financial obligations of borrowers have a number of consequences if they are not met. The most important are:

  • that Credit history deterioration. All data is entered into the appropriate database, which is tracked by other organizations before starting any collaboration with a citizen. Constant default on payday loans can cause lenders to stop working with a potential borrower due to poor creditworthiness;
  • Sale of receivables to collectors. The assignment agreement is entered into with the consent of the debtor, but most often stated directly in the text of the payday loan agreement. It is not uncommon for collectors to employ methods of psychologically influencing the borrower. In some cases they even exceed the legal limit;
  • go to court. The litigation itself does not have such serious consequences, but it can increase the debtor’s cost of the amount of legal services and the amount of state taxes;
  • mandatory pick-up. The enforcement procedure is the process of performing a judicial act. Collection occurs through the search and sale of the debtor’s funds and property. These are only superficial consequences. If you take a closer look, they are more serious than they appear at first glance.

In which cases does MFI go to court?

The question of whether an MFI can sue may be of interest to any borrower. This is especially relevant for those who allow delays in the disbursement of loans on paychecks.

What if the MFI files a lawsuit?

It would be better never to allow this to happen when a decent borrower pays back their loans on time. At the same time, however, every borrower needs to know what best to do in a legal dispute.

How long does it take for an organization to go to court?

Typically, an MFI does not immediately sue a minor breach of payment. If the payday loan is not paid out on time, the MFI staff will usually contact the debtor on the first day of the delay.

Do Payday Loan Collectors Submit To The Court?

Much depends on the policies of the particular financial institution granting you credit. If the overall situation does not change for the better after one month from the first day of default in payment, debt collection companies take over. And only after the collectors’ methods have not led to the desired result do the MFIs take the case to court.

Whose side is the law on?

It should be understood that MFIs are different. Small and dubious creditors themselves often resort to illegal methods in the form of illegal actions by the same collectors. In such cases, debtors can turn to the police and the court to resolve the situation in their favor. In general, the larger MFIs that already have a good reputation operate on a purely legal basis. Your lending is tightly controlled by the central bank. This means that in the event of legal proceedings, the borrower will not be able to find irregularities in the lender to justify his own.


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