The Consequences of Defaulting on a Cash Advance Loan

Cash advance loans can be either secured or unsecured, meaning you may or may not have placed collateral down on the loan. If you did not place any collateral, the consequences of defaulting will be different from with a loan secured with collateral. In both cases, though, a default will bring fiscal and credit penalties.

Fiscal Penalties

You will find fiscal penalties follow the majority of late payments and loan defaults. These penalties will be disclosed up front in your loan contract. High-risk loans, such as unsecured cash advantages, tend to have much higher penalties for missing a payment. In fact, payday cash advances can have astronomical financing penalties if a payment is not made in full on time. Whether your loan is low or high risk, you will likely have to pay additional fees. The fees go up due to interest only if they are not paid on time. The cost of a loan can continue to increase over the delinquency period leading up to a default. Then, if default does occur, you may find you owe far more than you anticipated to close the loan contract.

Credit Penalties

Your credit score will drop the minute your loan goes 30 days late. In fact, some lenders will not even give you this large of a grace period before reporting the loan payment late. Your numerical credit score goes down, and a red flag posts to your full score illustration. These flags become more detrimental the longer the loan goes without being repaid. A 60-day or 90-day absence of payment further damages a credit score. Finally, once the loan moves into default, the lender reports the debt as "bad debt" to the credit bureaus. This means the lender has moved it onto the liability side of the financial balance sheet, and you will officially have a default on record.

Asset Repossession

If you have secured your cash advance with an asset, the asset can be seized through a process of repossession. An example is a car title loan. In this case, you have used your automobile to secure the debt. The lender can repossess your automobile, and the lender may not even need to notify you first depending on the terms of your contract. With a home equity cash advance, you may feel you are protected from foreclosure. However, the cash advance lender can actually purchase your primary mortgage and foreclose on your home if you fail to repay the debt.

Legal Repercussions

When you have not placed an asset as collateral, the lender will have to try to recover the funds in another way. The lender will not simply walk away. If the debt is small, a collections agent may continually contact you and harass your credit score until you pay. With a larger debt, though, you may find the lender will issue a lawsuit. A judge will have to determine if you are a legally obligated to repay the debt. If you are, the judge can order liquidation of an asset or even order garnishment of your wages in order to repay the lender.

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