Payday loans carry a high interest rate and a short repayment period, but do not require a good credit score. This makes them a good option for people who need a quick loan that they know they can pay back on time. Otherwise, if the loan is paid back late, the borrower is legally obligated to pay back the full principal plus late fees.
Payday Loans
Payday lenders typically require that a borrower leave some form of repayment at the time that he takes out the loan. This usually takes the form of a postdated check or a checking account number. The person also signs a contract that outlines the fees he will pay, as well as the additional fees if he defaults
Repayment
Payday loan contracts are legal documents. If a borrower doesn't repay, he can be taken to court by the lender for breach of contract. If the borrower loses the case, the judge will likely demand that he pay the amount of the debt in damages. Even if the judge doesn't issue an order to repay, the debt obligation remains. However, the creditor has fewer legal options to collect it under that circumstance.
Debt Settlement
Although a person is legally obligated to pay back what he borrowed plus interest and penalties, the lender may be willing to accept a lesser amount. Some lenders are willing to negotiate a debt settlement on the theory that partial payment is better than no payment. A debt settlement will hurt the person's credit, however.
Considerations
There are several situations in which a person is not legally obligated to pay a payday loan back. One is if the terms of the debt contract were illegal. For example, a lender may have charge too much interest. In such a case, the debt contract would be invalid. Also, if the statute of limitations on the collection of the debt has expired, the lender can no longer sue the borrower for repayment.
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