Good times are not forever. There are times you need to sit down and relax. There are also times when you need to find solutions to your problems. The most common and stressful problem many people are facing today is how to get over loan defaults.
For people who are struggling with their finances today, payday installment loans have been providing quick solutions for every cash need. Payday installment loans have been a helpful financial resource of people in need of instant cash who are unable to qualify for a traditional loan from banks. However, the problem with these short-term loans is the high interest rate and short pay back period. In fact, according to the American Economic Association, 12% of borrowers default because of the high interest rates associated with this unsecured loan.
When a borrower pays his loan but his check bounces, the payday installment loan lender considers this a loan default. Although loan defaults are not illegal, it will subject a borrower to certain sanctions that will depend on the prerogative of the lender.
When a loan goes into default, the lender will usually contact the borrower on the telephone and via the mail. Loan defaults that have reached 120-180 days from the scheduled payment due date are no longer considered current accounts. The lender can impose a “charge-off” or “write-off” against the borrower. Charging-off a debt is the term used by lenders when they determine that they are not able to collect a debt owed by a defaulting borrower. A charged off debt is not considered a “forgiven” debt because it will still be collected from the borrower through a collection agency or a lawyer.
Usually, charged-off debts have a negative impact on the credit profile of a borrower. Once the default occurs, lenders notify the credit bureaus. Take note that having one or more unresolved charge-offs will result in fewer opportunities of getting credit from other lenders. It can also affect the interest rates on your future loans.
There may be civil proceedings by a lender, but most states do not allow these proceedings for a bounced check. However, there are two scenarios where lenders may seek help from a civil court in case of loan defaults. One is when the borrower stops his payment on the check or closes his bank account prior to the end date of the loan. This is considered by law an intention to defraud the lender or the loan company. So if you make loan defaults by bouncing checks, you must still keep your account open. Do not stop paying unless the payday installment loan company or the lender is doing something illegal.
The courts may order the borrower to use a payment plan to pay off the debt. If the borrower fails to comply with the court ordered payment arrangement, then the court can charge the borrower with contempt and may order fines or jail time. The court may also order wage garnishments where the borrower’s employer will be contacted to deduct a portion of the borrower’s wage each payday and send it to the lender until the payday installment loan is fully paid. The court may also order deductions from the borrower’s checking and savings account where the lender can get funds to pay off the loan.
Basically, loan defaults can result in damaging effects. It is therefore important that borrowers avoid making loan defaults to prevent further debt complications. Borrowers must keep in mind to borrow and pay responsibly.