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Can You End Up In Court If You Don’t Pay Back A Payday Loan?

If you have ever taken out a loan for a reasonably short amount of money, under the conditions that you will pay the money back on or around your next payday, this is what is known as a ‘payday loan’.

You’ve probably all seen the adverts, and some of you may have even been tempted to apply for one yourselves, but what actually does happen if you take out a payday loan and you cannot make the repayments; is there a chance you could end up in court? This article runs through the general procedures and protocols that all the major payday loan companies follow, and the potential consequences you could face.

It’s worth mentioning, before we get into more detail, that should you not be able to make your first repayment, you won’t be summoned to court. In fact, the major payday loan companies follow a general protocol which allows you several opportunities to find the money – though you may incur further charges on top of the original agreed repayment fee.

The first thing you should do if you find yourself in a position where you cannot make the repayments is contact your loan provider to talk about alternate payment plans. Communication is key, and the more you let them know, the sooner you can resolve your financial crisis as opposed to trying to ignore the inevitable. As we mentioned earlier, the first consequence you can expect for a late repayment is the addition of interest on your repayment amount. The amount of interest varies between different loan providers, and you can also expect to be charged with a repayment fee.

Under these circumstances, by law, your loan providers must treat you fairly and reasonably, suspend recovery of the debt if you are developing an alternative repayment plan, and also direct you to an independent money advice service. You however continue to fail to comply with the alternative repayment plan, and therefore there are further steps payday loan providers can take.

It is again worth mentioning that although a lot of payday loan companies get a bad press, new laws and leniencies in their guidelines mean your individual situation and circumstances are taken into consideration before court action is taken. Court action is not something the average loan provider will do lightly or swiftly, but consistent failure to comply might leave them with no other option than to take out a court judgement.

If you do find yourselves in a civil court the outcome will be entirely dependent on the amount you owe and your individual financial and living situation; if you are in a dire situation the judge will take this into account. Before you reach a court order, the more likely consequences will be added fees or having your details passed onto a debt collection agency.

Remember that if you are in financial turmoil, you have options to seek advice from an independent money advice service.

How do payday loans affect my credit rating?

Can a payday loan harm your chances of one day getting a mortgage? The short answer is, it depends. While the risks of taking out short term, high-interest loans have been well documented, it’s worth noting that, managed wisely, a payday loan need not be a black mark on your credit report. In fact, handling your payday loan responsibly can show finance lenders that you can be entrusted with a mortgage.

Many people hope to one day obtain a mortgage and own their own home. Others long to be able to borrow money to cover large purchases, such as a new car. To do this, they will need to have a good credit rating when they approach finance lenders.

Anyone who is keen on managing their money sensibly will be aware of the risks of depending on payday loans. Sometimes, however, immediate and pressing circumstances mean you need money quickly. If you have limited access to credit, a payday loan can be a solution, provided you know that you will be able to pay it back on time.

Yet, many hesitate to take out a legitimate payday loan, fearing the effect this will have on their credit rating and their chances of being approved for bigger loans in the future.

When deciding whether or not to offer you a mortgage, lenders will analyse your financial history closely and give you a credit score. They will be looking out for evidence that you pay back money that you have borrowed.

They will have access to your credit history which will show them loan applications you have made, loans you hold, and whether you have defaulted on your payments. They will also see loan accounts that you have closed, or paid out in full.

If they see that you frequently takes out payday loans, they might see you as somebody who struggles to manage their finances. If, even worse, your credit report shows that you have been late or have defaulted on your payments, most lenders would judge you as a poor risk, and your chances of getting a mortgage will less robust.

Finance lenders are looking for people who have a good credit history. This means that you make your loan payments on time whenever they are due, and that you pay off your loans in full.

Payday loans can actually help you prove to mortgage lenders that you are capable of doing exactly this.

Make your payments regularly, and your credit report will reflect this. Since payday loans are short term loans, you can build up a history of closed accounts relatively quickly as opposed to, for example, a loan with a two or three year payment period.

This assumes, of course, that you have taken all the other measures to bolster your credit rating, such as ensuring your name is on the electoral roll, and that you avoid making several credit applications over a short period of time.

Do Payday Loans Affect Your Credit Score?

Payday loans are one of the most popular methods of obtaining credit today. One of the only options available to those who struggle to get credit with a standard high street lender, payday lending companies make it quick and easy to get a short term loan even for those who have a poor credit history. While this line of credit is very useful and can provide a great way of accessing funds in the event of an emergency, some people who take out a payday loan worry that it may have a negative effect on their credit score, making it even harder to access a loan from a standard lender in the future.

Lenders will share information about their borrowers via credit reference agencies, so any time you take out a loan, from a payday lending company or elsewhere, details about your payments can be accessed by other financial institutions if you apply for a further line of credit in the future. This means that any company that you approach for credit will be able to see that you took out a payday loan and will also be able to see whether or not you kept up with the repayments. Of course it goes without saying that if you default on a payday loan this will impact negatively on your credit score in just the same way as defaulting on any other type of loan. This will, in turn, affect your ability to obtain any form of credit in the future.

If we assume that you make all of your payday loan repayments in full and on time, there is no easy answer as to whether or not the fact that you took out a payday loan will affect your credit rating. This is because all lenders have their own scoring criteria which they will refer to in order to decide whether to extend credit to a particular applicant. It is possible that a payday loan may be recognised as a sub-prime loan by any potential lender and therefore as an indicator that your finances are under pressure. Some lenders may have scoring criteria which states that people who take out payday loans are more likely to miss payments or default on their loans and this may lead to any application for credit with that company being refused.

On the other hand, several financial institutions do not differentiate between payday loans and any other type of loan, and therefore so as long as the correct repayments are made in a timely fashion, a payday loan could even boost your credit score by showing that you are a responsible borrower.

Overall, a well handled payday loan is likely to have more of a positive effect on your credit score than a negative one. Therefore, anyone taking out a payday loan for whatever reason is advised to concentrate on ensuring that all repayments are made in full and on time in order to improve their credit score over time and eventually allow access to a greater choice of traditional high street lenders in the future.