If you’ve ever found yourself in a financial pinch, you’re probably familiar with payday loans. You know, those short-term loans that give you the quick boost you need to get through to your next payday? Yes, those!
Payday loans are an excellent option if you need money right now. But, like any type of financial tool, you should use them responsibly. This means only borrowing what you can afford to pay back on time and understanding all associated fees and interest rates.
For example, if you experience a sudden expense or emergency, this type of cash advance provides immediate relief. However, if you don’t pay it back on time, you could see additional fees or negative impacts on your credit report.
Understanding what happens if you can’t repay a payday loan can help you make more informed decisions. Knowing what to expect when taking out this type of loan can also help you borrow with more confidence and choose a loan provider that aligns with your needs.
Let’s dive deeper and see what happens if you don’t pay back a payday loan. We’ll also learn why getting a payday loan can help your financial situation when you use them the right way.
What Are Payday Loans?
Payday loans are temporary loans designed for individuals who need quick cash before their next paycheck arrives. They are for small amounts, up to $1,500. Use the loan amount to cover anything from unexpected expenses to temporary cash shortfalls.
If you’re unable to access traditional financing due to your income level or credit standing, a payday loan can provide you with the necessary funds. Alternative lenders understand that everyone faces financial difficulties, which is why their loan requirements are more lenient compared to banks or credit unions.
As long as you meet the minimum requirements, which include being the legal age of majority in your province, having a steady source of income, and having an active bank account, you qualify. Even if your income comes from non-traditional sources such as government benefits, child tax credits, self-employment, or pensions, you’re still eligible.
What Are the Uses of Payday Loans?
Payday loans are commonly used to cover unexpected expenses or emergencies, such as car repairs, medical or dental bills, urgent travel expenses, etc. You can also use them for living essentials, including rent payments, rent security deposits, utility bills, and groceries.
Borrowers often receive funds the same day they apply, usually within minutes of approval. Get a fast e-Transfer sent around the clock, including weekends and holidays, when you work with an online loan provider.
How Do Payday Loans Work?
Payday loans operate under a straightforward principle: you borrow a small amount of money that you must pay back by your next payday – up to a 62-day maximum term. The process involves submitting an application, which includes your proof of income, bank account details, and valid identification.
The approval process takes only minutes. Once you’re approved, receive the funds through email transfer, 24/7. You are free to use the money how you see fit, whether it’s for an emergency or to cover day-to-day costs.
Repay the loan plus associated interest charges with your next paycheck. Regulatory frameworks for payday loans vary by province but generally include caps on borrowing to a specific percentage of the loan amount.
For example, the province of Ontario limits the borrowing costs to $15 for every $100 borrowed. This means on a $400 loan of 14 days, your total payback amount would be $460 ($60 in interest plus the initial $400 loan amount).
What Are the Consequences of Not Repaying a Payday Loan?
Now that you have a better understanding of what payday loans are and how they work, let’s discuss the consequences of not paying one back on time. Whether you’ve fallen behind on your payments or completely ignored the loan, there are consequences for not fulfilling your repayment obligations.
Of course, honest communication with your lender is always the best course of action. If you’re having trouble making your payments, reach out and explain your situation. Many payday lenders are willing to work with borrowers to come up with extended payment plans to fit their current financial situation.
However, if you ignore the loan or fail to make any effort to communicate with your loan provider, here’s what could happen:
Late Fees
Most lenders will charge a late fee if you miss a payment or fail to make the minimum required amount. These fees can quickly add up and make it even more challenging to repay your loan. Consider the late fees associated with your loan and factor them into your budget to avoid falling further behind.
In Ontario, for example, the maximum interest rate of 2.5% per month (non-compounding) can be charged on the outstanding principal of a payday loan in default. There’s also a maximum one-time fee of $25 that may be charged for bounced cheques or pre-authorized debit.
The best way to avoid any late or bounced payment fees is by paying your loan on time or communicating with your provider if you’re unable to make a payment. Some lenders may waive late charges in certain circumstances, but this is not a guarantee.
Collection Calls or Letters
Ignoring your loan can also lead to collection agency calls or letters from the lender or a third-party debt collector. These calls and letters can be stressful and may disrupt your daily life.
To avoid unwanted calls and letters from debt collectors, communicate with your lender and work towards finding a solution that works for both parties. Remember, second chance loan providers are usually very understanding and willing to work with their customers to find a suitable payment schedule.
Can You Tell Collections to Stop Calling?
Yes! You have the right to request that collection agencies stop contacting you through phone calls and letters. However, this does not eliminate your obligation to repay the loan.
When making this request, make sure to do it in writing and keep a copy of your records. This collection agency must then comply with your request. If they continue to contact you after receiving your written request, you have the right to report it to your province’s consumer services agency.
Credit Score Damage
Not paying a payday loan on time can lead to credit score damage. Once the delinquent account is turned over to collections, the payday loan company can report it to the major credit bureaus, resulting in a negative impact on your credit report. This can make it very difficult to obtain loans or other types of credit in the future.
A collection account can stay on your credit report for up to six years, making it very important to pay back the debt as soon as possible. However, if you are unable to do so, communicating with your lender and arranging a repayment plan can help minimize the damage to your credit score.
You can also take the following additional steps to rebuild your credit score:
Regularly check your credit report for any errors or discrepancies.
Dispute any errors on your report, so that they don’t continue to impact your financial standing negatively.
Sign up for a credit monitoring service to keep track of any changes on your credit profile.
Make timely payments on all of your current debt, including payday loan debt.
Prioritize paying off debts with the highest interest rate first.
Debt consolidation, in other words, combining multiple debts into one can make it easier to manage payments.
Keeping credit card balances low and paying them off in full every month.
Avoiding new hard credit inquiries, as they can lower your score temporarily.
Improving your credit standing takes time and effort. But, taking these positive steps will help you improve your financial health over time.
Unmanageable Debt
Let’s face it - being in debt isn’t fun! But, you can avoid it by understanding your financial situation and making responsible decisions when borrowing money. Payday loans are a helpful borrowing tool when used the right way.
But, if you fail to pay your loan on time, it can add to your debt load. One way to avoid taking on more debt than you can handle is by working with a reputable lending company that holds valid licenses and follows responsible lending practices.
Trusted payday lenders won’t let you borrow more than you can afford to repay. Of course, unforeseen circumstances can happen, making it difficult to pay back by the due date. As long as you communicate with your lender and work out a reasonable repayment schedule, you can avoid falling into a constant debt cycle.
Ways to Get Money to Repay Your Payday Loan
Need to find ways to get more money so that you can repay your payday loan on time? Thankfully, there are several options available to you:
Sell unwanted items: Get cash right now by selling unwanted items you no longer need. You can sell these items through online marketplaces, such as Kijiji or Facebook marketplace, or by hosting an in-person garage sale.
Multiple sources of income: Consider additional income streams, such as taking on freelance work or a part-time job. This can help supplement your income so that you have enough money to pay off your loan.
Government benefits: Depending on your financial situation, you may be eligible for government benefits for low-income Canadians. Look into these options to see if they can provide temporary relief for paying back your loan.
Friends and family: If you have a close relationship with someone willing to lend you money, it could serve as a potential solution to help settle your loan. Of course, ensure the friend who lends you money is comfortable with the arrangement.
Negotiate with your lender: If you're struggling to pay back your loan, don't be afraid to communicate with your payday lender. They may be willing to work out a new repayment plan that is more manageable for you.
Repay an iCash Payday Loan Without Stress!
Repaying your payday loan is easy with iCash! We are among the most reputable payday lenders in Canada with a simple and transparent loan process. Our goal is to help you manage your finances while providing fast and efficient loans when needed.
It's also very easy to pay back your iCash loan. Simply log into your online account and make a payment using one of our convenient options: e-Transfer or pre-authorized debit.
Plus, with our flexible repayment options, you have the power to manage your loan on your terms. Whether you want to pay off the loan in one lump sum or make smaller, more manageable payments over time – the choice is yours!
Need a short-term loan for extra cash or to cover a financial emergency? Feel confident choosing iCash as your trusted payday lender. Apply online or through the digital loans app for up to $1,500 in 2 minutes!
