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  • You can go to court if you are unable to repay your payday loan
  • Not repaying your loan can negatively impact your credit score
  • If your payday lender takes you to court, you must attend

 

Payday loans, while often providing quick and easy access to cash, can become a financial burden for borrowers. If you find yourself unable to repay a payday loan, you might wonder about the possibility of facing legal consequences, including going to court. In this article, Finger Finance will explore the factors that determine whether you can go to court for not repaying a payday loan.

 

Understanding Payday Loans

 

Payday loans are short-term, high-interest loans typically meant to be repaid by the borrower’s next paycheck. They are often appealing to individuals in need of immediate funds for emergencies or unexpected expenses. While they may provide quick cash, payday loans can come with high interest rates and fees, making them a costly borrowing option.

 

Is It Possible To Go To Court If I Don’t Repay My Loan?

 

If you fail to repay your payday loan, there is the chance that your lender will take you to court to secure the money they are owed. Payday lenders will work with clients in an attempt to secure the money they are owed in a way that is in the best interests of both parties.

There is the possibility that a lender could take you to court if no other resolution can be found. Taking a client to court will always be a lender’s last resort.

Not repaying your payday loan could result in a number of outcomes, including a negative impact on your credit score (making it harder for you to borrow money in the future), wage garnishment and debt collectors. However, it is incredibly unlikely that you will go to prison for not repaying your loan.

 

Can I Go To Court If I Fail To Repay My Loan?

 

To determine whether you could go to court, it is essential to consider the following factors:

 

The Loan Agreement

The terms and conditions of your payday loan agreement play a crucial role in determining the lender’s recourse in case of non-payment. Here is what you need to consider:

  • Contractual Obligations: When you take out a payday loan, you enter into a legally binding agreement with the lender. The agreement outlines the loan amount, interest rate, fees, and the repayment schedule.
  • Default Terms: Review the loan agreement for clauses related to default. It should specify what happens if you fail to make payments on time. This could include additional fees, higher interest rates, or collection efforts.

 

State Laws and Regulations

The legal framework surrounding payday loans varies from state to state. Some states have strict regulations that limit the actions payday lenders can take in case of non-payment, while others are more lenient. Key considerations include:

  • Interest Rate Caps: Some states impose interest rate caps on payday loans to protect consumers from excessively high rates. Lenders operating in these states may have limited recourse in case of non-payment.
  • Collection Practices: State laws often dictate the permissible collection practices for payday lenders. These practices must comply with the Fair Debt Collection Practices Act (FDCPA), a federal law that regulates debt collection activities.
  • Legal Actions: In certain states, payday lenders have the option to take legal action to recover unpaid debts. This may involve filing a lawsuit against the borrower.

 

What Will Happen if I Do Not Repay my Loan?

 

Defaulting on your payday loan can drain your bank account, trigger wage garnishment, collection calls and lawsuits. Once the agreed loan period has passed the lender who you borrowed from will continue to seek any unpaid amount on your loan.

The payment lender will set up automatic withdrawals from your account, attempting to regain as much for their loan as possible. This can result in bank fees for you. If this is unsuccessful, your lender may set up wage garnishment, which involves a part of your pay check being withheld, and going directly to the lender to repay your loan. During the time in which your loan is not being paid, it will still be accrediting interest.

 

repay-loan

 

If you fail to repay a payday loan and your lender decides to pursue legal action, here is what may happen:

  • Court Proceedings: The lender may file a lawsuit against you in civil court to recover the outstanding debt. This legal process can result in a court judgment against you.
  • Judgment: If the court rules in favor of the lender, a judgment may be issued. This judgment outlines the amount you owe, including the loan principal, interest, fees, and legal costs.
  • Collection Efforts: With a judgment in hand, the lender can take further collection actions, such as wage garnishment or bank account levies, to recover the owed amount. The extent of these actions depends on state laws.

 

What if I Have No Money and Can’t Repay?

 

Being unable to repay a loan can be an incredibly stressful situation. If you still need to pay rent and put food on the table for your family that has to come first. In situations like this, it is advisable to seek advice from a nonprofit credit counsellor, bankruptcy attorney or legal aid centre about your next moves.

If you cannot repay your payday loan, there is the possibility of claiming bankruptcy. Claiming bankruptcy is something that should be talked over with a professional and will only be appropriate in certain situations.

When you realise that you will not be able to repay the loan, it is best to get in contact with your lender directly and see if you can work out a schedule for repayment that works for both you and the lender. Wherever possible the lender will try to make it possible for you to repay the loan.

It is worth noting that a payday loan is only ever designed to be used as a short term fix, for unpredictable, unexpected one-off payments. A payday loan  should be used to bridge the gap between one pay cheque and the next. That means that you should only ever be borrowing for a short period of time.

 

What Happens if I Get Summoned to Court?

 

Taking you to court will always be a lender’s last resort, wherever possible your lender will try to arrange a sensible repayment program that caters to your needs. However, if co-operation stops or you are unable or unwilling to repay your loan your lender may take you to court.

Lenders do not just go to court over large cases, lots of lenders will be willing to go to court over relatively small amounts of money. You should not be surprised if your lender takes you to court over a relatively small loan.

If a lender does take you to court, it is important that you show up. You should never ignore a lawsuit. A lot of lenders automatically win cases, because their clients do not show up to court so it is always in your best interest to attend court.

 

Do I Have Rights If I Get Taken To Court For Not Repaying A Loan?

 

It is important to understand that you have rights and defenses if you are taken to court over a payday loan:

  • Verification of Debt: You have the right to request verification of the debt to ensure its accuracy and legitimacy.
  • Statute of Limitations: In some cases, the statute of limitations may apply, limiting the time within which a lender can sue you for an unpaid debt.
  • Improper Lending Practices: If the lender engaged in predatory lending practices or violated state lending laws, you may have valid defenses in court.
  • Bankruptcy: If your financial situation is dire, you might explore bankruptcy as a potential solution to discharge or restructure your debts.

 

Final Thoughts

 

While it is possible to go to court for not repaying a payday loan, the outcome depends on various factors, including state laws, the terms of your loan agreement, and your ability to defend against legal actions. It is crucial to carefully review your loan agreement, understand your rights, and seek legal advice if you’re facing legal proceedings related to payday loan non-payment.

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Charlotte Diffey

Charlotte is an expert writer with lots of experience in the financial world. Read her articles for useful guides on payday loans and advice on how to boost your savings.

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