Payday loans are often used as a way to respond to an emergency or unexpected expense. They are not intended to change a person's payday and the terms of the loan usually last for two weeks. The borrower is expected in most cases to sign a post-dated check that covers the fees, interest, and the amount of the loan.
As the poet Robert Burns once observed, the best laid plans of mice and men gang aft a'gley, or often go awry in proper English. A person with the best of intentions may not be able to pay back a payday loan for whatever reason. When this happens, a payday loan can go into default and it can be hard to pay back the loan.
One of the first things that happens when a payday loan is default is that the company that issues the loan attempts to cash the post dated check. When the check bounces, the person who defaulted on the loan may need to pay any bank fees related to the bouncing of the check. When the person receives the insufficient funds notice, that is only the first of his problems. The company will make demands and issue statements to the credit reporting agencies. While one blemish may not affect a person with an otherwise good credit score too much, the problem comes when the loan stays in default for a long period.
If the check bounced because a person forgot to deposit a check, the issue can be resolved fairly quickly, but if a person failed to pay back a payday loan because he lost his job, the issue can escalate to one that has long term effects. Many businesses usually call in collection agencies after prolonged periods on non-payment. Going into a default on a Payday loan can affect a person's ability to get credit cards and other types of loan. An individual may find his existing credit cards canceled.
Depending on the company and its relationship with its customers, a payday loan business may decide to sue people who are in default. While being reported to a collection agency stays on your credit rating for several years, having a judgment placed against you such as a CCJ has longer reaching effects. Even if a person pays off the debt, the judgment stays on his record for up to ten years. If a person suspects that he cannot pay pack a payday loan for any reason, he should not take one out and instead look to reduce non-essential expenses or look elsewhere for additional funds.
