There are many different types of debt, and not all of them are created equal. There is a stigma surrounding debt that makes many people think that all debt is bad, but it doesn’t have to be. Many types of debt are there to help us afford those things we could never afford up front, like a car or a house, and as long as we are able to keep up with our payments, these debts do not become “problem debt”.
There are other types of debt, however, that are far more likely to become problematic, and payday loans are an example of these. This is not to say that there is never a time or place for a payday loan – sometimes something comes up that you are not prepared for and that needs to be taken care of right away, like a car breakdown or an urgent home repair, and a payday loan can literally save the day. The problem is that this will only work if you are absolutely certain you can pay the loan back when it is due.
What is a Payday Loan?
A payday loan is a short-term, high-interest loan that must be repaid in full, either at the end of the month or on your payday. If you are unable to pay it back, you may end up facing enormous interest charges, additional rates, or even legal action.
Aside from the legal ramifications, you will now be sitting with a loan that you were unable to pay back when it was still an amount you thought you could afford – now it has had interest added to it, as well as extra fees, and it becomes even more difficult to pay back. This could affect your spending and saving for months, and could have a negative impact on your credit file.
Despite payday loans being a lifesaver in certain circumstances, most experts will advise against applying for one, unless you are in the direst of circumstances, and are absolutely sure you will be able to repay the loan on time, without causing yourself any further problems or defaulting on existing debt repayments. The reason for this is the well-known set of dangers related to taking out a payday loan.
What Happens if I Can’t Pay?
Not all lenders are the same, and you will need to read the terms and conditions of your agreement very carefully before signing the contract with your payday loan lender, in order to know what is expected of you in regards to repayment. Some lenders are more lenient, and you may find that you can rollover your repayment for one month, but be cautious, as this could add a significant chunk of interest to the amount owed.
Payday Loan Consolidation
This is an option sometimes given to people who are unable to pay their payday loans on time. However, this is a dangerous option which involves creating a larger loan in order to repay the first. This will only exacerbate the problem.
Loss of Assets
A payday loan is an unsecured debt which is managed through a contract, rather than having any asset attached to it. When you fail to make your payment on time, your lender will contact you to attempt to retrieve the money. Should you be unable to pay, they will then contact a debt collection agency for assistance. Should the debt collector also be unsuccessful in getting the money from you, the bailiff may be contacted to deal with the problem. When this occurs, your assets could be seized and sold off in order to repay the money you owe.
How to Ensure That You Can Repay Your Loan
Before you sign any document that will secure you a payday loan, consider your circumstances very carefully, and make sure you are absolutely certain there can be no reason that you would be unable to repay the debt when it comes due. This includes things like possible changes in circumstance, illness, and retrenchment – if any of these things were to happen, do you have insurance, savings, or outside assistance that could help you to repay the loan? Also consider the following aspects of a payday loan before making the commitment and signing that contract:
- Is the repayment amount comfortably within your budget? Or will you have to skimp on other payments to make it work?
- What is the interest rate the lender is charging you, and what will the total repayment amount be? Is it worth paying back significantly more than you borrow?
- What are the penalties for late payment, and what will you do if something prevents you from being able to repay the loan?
If you have found yourself unable to repay your payday loan and your debts are now getting out of hand, reach out to the non-judgemental team at Debt Movement for impartial debt guidance and solutions.