THE TRUTH ABOUT LENDING IS HERE Loan.com

Payday loans are already very expensive, and when you default on a payday loan you will have difficulty getting out from under the debt. Payday lenders notoriously take advantage of individuals in desperate financial situations who have pressing needs that cannot wait until the next paycheck comes through. Because these individuals are in such a bad place, they do not often pay close enough attention to the loan terms on their instant loans. This can result in very damaging financial repercussions if the loan goes into default.

High Interest Rates & Fees

The first thing that will happen on a payday loan default is the lender will assess fees against you. These fees will often be astronomical, and it is not rare to pay 50% of the total price of the loan in lender's fees. Further, the interest rate on any additional loan you seek from the lender will go up. Many of these lenders who not report the loan to the credit bureaus. Instead, they usually rely on collateral in the form of a future paycheck or asset. This means your FICO score may not suffer, but you will end up forfeiting a much more valuable piece of collateral if you do not pay off the loan.

Cycle of Debt

The problem with payday loan defaults for most borrowers is it traps them in a cycle of debt. The majority of borrowers seeking payday loans do not have access to funds or savings in the case of a financial emergency. This means, in order to pay off the fees associated with the default, the borrower has to seek another payday loan. With the interest rates higher, the new loan can be tremendously expensive and risky. A borrower may end up forfeiting a huge percentage of an income each year just by getting advances on every paycheck.

Preventing Default

The key to avoiding these consequences is avoiding default. For most borrowers, the best way to avoid default is to not take out the payday loan in the first place. Instead, talk with other lenders to see if you can have an extension on your payments. For example, contact a landlord, utility company or doctor's office and explain you will have to wait until your next paycheck to pay off the amount you owe. You can also discuss payment options with most lenders. They usually find they have a better chance of recovering their funds this way than if you use a payday loan to start making payments with them.

Payday Loan Alternatives

If you absolutely must have financing to get you through to the next paycheck, try seeking a personal loan instead of a payday loan. Personal loans will often have lower interest rates for people with bad credit than payday loans will. Further, they mature slower and have lower monthly payments. Successfully paying a personal loan will build your credit more than paying a payday loan. You will also have better terms and more legal protections with a personal loan from a trusted lender than from a payday loan company with bad business practices.