How Do Payday Loans Work & What Happens if You Don’t Pay?

More and more private borrowers and legal entities use microcredit services from banks and microfinance organizations. In the case when for some reason it is not possible 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 an action plan.

With the “competent” behavior, non-payment of the loan is not a disaster. On the contrary, it is often more profitable to give up huge monthly payments and wait for the trial. During the trial, the amount owed will be fixed and no more interest will be charged, at least that is what the info at Directloantransfer says about it. The schedule for repayment of this amount will need to be negotiated with the bailiffs who are almost always ready to compromise (if you prepare correctly for this stage).

Working Principles of Payday Loan

Payday loans are short-term loans originally designed to promote people up to their paychecks. The money is credited directly to your bank account. You pay interest and fees in full at the end of the month. If you do not pay off your payday loan obligations, then you will have to collect debts.

However, you may increasingly take payday loans for longer periods usually three months (still, longer payday loans are available), and repay them in installments. What all 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 can’t afford to pay it back on time. You should think carefully before choosing a payday loan. During the year, the average annual interest rate can be up to 1500%, compared to 22.8% per annum for a regular credit card. Payday loans are limited by law in accordance with the rules set by the Office of Financial Conduct. The rules limit the amount of interest and default fees that you may charge.

Someone who took out a payday loan for 30 days will pay no more than £ 24 in fees and charges per £ 100 borrowed. If you don’t pay off on time, the maximum amount you get in default fees is £ 15 plus interest on the amount you borrowed.

Before agreeing to a payday loan, many lenders will ask you to establish a recurring payment prior to payday also known as the Continuous Payment Authority or CPA. This allows them to collect the debt directly from their bank account via a debit card on the day of maturity. This can be convenient but it is risky at the same time. This may not leave you with enough money in your account to pay other bills such as a mortgage, rent, or other important expenses such as heating or food. However, this can lead to the overdraft limit being exceeded leading to bank charges. If you don’t feel the CPA will give you enough control, ask the lender if you can do it in other ways. You can cancel the CPA at any time although you still owe the debt. So, you need to repay it in another way.

What If You Cannot Pay Your Payday Loan?

Consequences of Loan Non-Payment

The financial obligations of credit debtors have a number of consequences if they are not fulfilled. Among the main ones are:

• the deterioration of credit history. All data is entered into the appropriate database which is followed by other organizations before starting cooperation with a citizen. Constant defaults on payday loans may lead to the fact that lenders stop cooperating with a potential borrower as the credit rating will be low;
• sale of debt to collectors. The assignment agreement is concluded with the consent of the debtor but most often it is directly indicated in the text of the payday loan agreement. Collectors quite often use methods of psychological influence on the borrower. In some cases, they even overstep the legal line;
• going to court. The litigation itself does not have such serious consequences but it can increase the debtor’s expenses for the amount of legal services and the amount of state duty;
• compulsory collection. Enforcement proceedings are the process of implementing a judicial act. Debt collection is carried out through the search and sale of the debtor’s funds and property. These are only superficial consequences. If you look deeper, they are more serious than they seem at first glance.

In What Cases Does MFI Go To Court?

The question of whether an MFI can sue is perhaps of interest to every borrower. In particular, it is relevant for those who allow delays in the payment of loans to paychecks.

What If the MFI Filed a Lawsuit?

It would be better to never allow this to happen to be a decent borrower who pays back their loans on time. But at the same time, every borrower needs to know what is the best action to take in a lawsuit.

How Long Does it Take for an Organization to Go to Court?

Typically, an MFI will not immediately sue for a minor payment violation. Usually, if the payday loan is not paid on time, the MFI employees will contact the debtor on the first day of delay.

Do Payday Loan Collectors Submit to the Court?

Much depends on the policy of the particular financial institution that lends you. If after a month from the first day of delay in payments the situation as a whole does not change for the better, collection agencies take over. And only after the methods of the collectors have not yielded the desired result, the MFIs bring 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 of 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 which already have a good reputation, operate in a purely legal manner. Their lending activities are strictly controlled by the Central Bank. This means that in the event of legal proceedings the borrower is unlikely to be able to find any irregularities on the part of the lender to justify their own.