Payday loans are a short-term loan that usually does not require a credit cheque. Loans are due in 14 days or when you receive your next payment, which is why they are commonly called payday loans. A survey found that 9 million Canadians take out salary loans each year with the expectation that they will be able to pay the loan by their next payday. The probability of defaulting on a payday loan is very high.
What is the pattern?
While RedPayday loans generally do not require credit checks, they usually do require a postdated cheque or electronic access to your said account. Once a payday loan is due, you can make the payment in person or the lender will withdraw the outstanding balance from your bank account. If the money is not in your bank account and your bank does not pay the overdraft, the lender will keep trying to deduct the amount. Each time your payment is returned due to insufficient funds, your bank will charge you an insufficient funds fee that sinks you further into debt to your bank, at the same time the salary lender is trying to collect payment on your loan.
What happens in case of failure?
When creditors are unable to withdraw the balance from your bank account, they will start calling you to collect payment. They can email or call you at work or contact your friends and family to see if you can make the payment. In the meantime, the outstanding balance of the payday loan can increase as fees, interest, and penalties are added. According to another study, 50% of payday loan borrowers default on a payday loan two years after taking out the first loan.
Impact on your credit
Your credit report was protected against the payday loan because no credit checks were performed. On the other hand, if you fail to pay the debt, it will affect your civil score. Because of this, defaulting on your payday loan can hurt your credit score. If you are turned down by multiple personal loan lenders, a payday loan may be your only option. Experts say that payday loans should only be used in urgent situations, and only if you are confident that you can pay off the loan in full with your next payment. If you cannot pay back the loan, the payday creditor will eventually hand over your case to a third-party debt collector.