Payday Loan Default: Paying More than You Borrow

Payday loan default occurs when you take loan against a future paycheck and then are unable to pay back the loan. Defaulting on these loans is common because the fees are usually very high, ranging from 15-30% on average. This means, for a standard $300 loan, you could owe up to $390 to pay back the loan. There are a few factors other than interest rates that contribute to the high payday loan default:

  • Bad lending practices - payday lenders do not often perform credit checks
  • Desperate circumstances - those seeking payday loans are typically in immediate need of cash
  • Lack of explanation - many payday lenders to not explain the terms of the loan in full before delivering it

Payday loan lending is controversial as it takes advantage of the conditions of the borrower to charge very high interest rates. Many people who use payday loans end up with thousands of dollars of debt. If you need cash before pay day, ask your employer for options. If you are seeking a payday loan to pay off creditors, ask those creditors about exceptions for financial hardship. Consider other options before accepting the high interest rates of payday loans.

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