Payday loans are small loans issued on a short-term basis, usually less than a month. The term "payday" refers to the idea that the loans are made to a person who receives a paycheck, who will pay it back after his next payday. Many payday lenders require borrowers to provide a number for a bank account to which the lender can deposit and withdraw the money.
Lending Money
Before lending, payday lenders generally require that borrowers either make out a postdated check for the amount of the loan plus fees or provide an account number for a checking or savings account. The borrower must also provide at least one form of identification. When the loan comes due, the lender will either cash the check or attempt to withdraw money from the account. If the account has been closed, the lender will take steps to recover the money.
Closing The Account
If you close the account before the lender can withdraw money and make no other arrangement to pay, the loan goes into default. Because the lender will already know your name and contact information, you will not be able to dodge the debt. Instead, the lender will either attempt to collect the loan itself or outsource the debt to a collection agency.
Default Penalties
If you default on a payday loan, penalties will be assessed. These may include punitive fees as well as a new, higher rate of interest. According to the Federal Trade Commission, the interest on payday loans can reach up to 391 percent. Therefore, the amount you end up owing the lender may be many times the amount of the original loan.
Collection
In addition to reporting the debt to a credit reporting agency, the lender may threaten legal action if you continue to refuse to pay. The lender may even attempt to garnish your wages or seize money from another of your accounts, depending on the laws in your state.
0 comments:
Post a Comment