The short answer? They can’t file criminal charges, but it is possible for them to file civil charges against you. In this article we will talk in more detail about how payday loans work and what a collector can and cannot do.
How Payday Loans Work
The whole business model of payday loans is to give someone money if they need it in a hurry. Sometimes you stumble across some sort of expensive emergency. This could be your car breaking down or paying medical bills. These things can happen without warning.
You may have a payday coming up in the future, but you need the money right now. That’s when payday loans come in handy!
Payday loans will give money to anyone. You must be able to prove who you are with an ID, be able to provide proof of income, and have a valid checking account. Your proof of income doesn’t have to be from a job. You just need to prove that you’re getting paid somehow.
Payday loans don’t run credit checks. They check to make sure you have the means to pay the loan back only. This might seem risky for payday loan companies to do, but they also charge a huge interest rate (400%-500%) if you are late on your payment.
These interest rates are high because the chance of someone not being be able to pay a loan back is also high. It is also a higher risk to the loaner so they have to insure their money.
This can be a bit of trap for some people because they may see payday loans as an opportunity to get a bunch of money. Some do this without fulling understanding what happens if you cannot pay it back.
Generally people who have poor spending habits end up spending all their money. They spend their money on personal things before they pay their bills. These people are the type that will come to these places in hopes of getting money.
It’s a trap because these people will have trouble paying their loan back. Once they are late the interest rates kick in. It starts a downward spiral that keeps compounding on itself. It makes it impossible to pay a loan back.
This happens from time to time.
So What Happens If You Don’t Pay Your Loan Back?
If you haven’t paid your loans back you should expect to get contacted from the payday loan company. This can happen in many different forms and is often very aggressive. This is why it is important to know what they can and can’t do according to the law.
Unfortunately, there isn’t much you can do if the debt collectors begin calling you on the phone. The best strategy is to ignore them and block their calls.
It also isn’t uncommon for these collectors to come to your place of work to try and find you there. The worst thing about this is that can be embarrassing.
But there is a line between calling you to try to get you to pay and harassing you.
Debt collectors can say things like they are going to sue or report your debt to other debt collectors, but in reality they can’t do any of this.
The Fair Debt Collection Practices Act is what protects you from the harmful and abusive tactics used by debt collectors. It makes certain things illegal for debt collectors to do. Some of these things include: using abusive language, excessive calling on the phone, making threats, and filing criminal charges.
Contact the city court or law enforcement if you think a debt collector has violated these rules.
Even though a debt collector isn’t harassing you doesn’t mean they aren’t going to try to get their money back. You did take their money and you should repay what you owe.
Not repaying a loan is a civil offense. If a collection company wants to file suit against you they are legally allowed. In this case you should show up to court. You can ask that the collection company provide proof that you owe them the money.
You can also get sued if you took a loan without any intention of paying it back.
If you are still unable to pay after all this time has passed, then you may want to consider filing for bankruptcy. This would remove all the debt you owe to the company, but your credit score would also take a hit.
It is important to note that when you are in debt from a payday loan you should do everything you can to pay it back. Try contacting and seeing if they would be willing to negotiate a deal with you. You may be able to pay back your debt in installments or other ways.
How to Become (and stay) Financially Smart
Sometimes emergencies happen and you need the extra cash right away. In this case, payday loans are great. They can offer a lot of cash to almost anyone. But if you can’t pay it back the penalties are harsh.
You should not use payday loans for personal purchases. Only for emergencies.
There are many ways that you can use your money correctly to be able to afford nicer things. You could also prepare yourself against those unexpected emergencies. We will talk about a few of them here.
Start saving. A savings account for most people is like their emergency fund. Maybe your car breaks, you get sick, or there is something you want to buy that you need some money for. Having a savings account is a way to pay off important things without having to go to a loan company.
You also don’t need to have a whole lot of money in your savings account. Most people would say having 3 months worth of your salary in a savings account is a good start. You could always put more if you want.
Start investing. One downside to a savings account is that your money won’t grow. It will be the same amount in 30 years as it was when you first put money in there. But a savings account is good for the money that gets used in emergencies. You wouldn’t want that money to go anywhere.
Investing lets your money work for you. By placing it in the right spots, your money will grow overtime. Investing is a great way to put some money away now for a lot more money later. There are also many different types of investments you could choose from: real estate, stocks, bonds, foreign exchange currencies, peer-to-peer lending, and investing in startups.
If you take some time to learn more about investing you will see how it can help you. You would then find yourself having a lot more money in the future without having to work any harder.
Cut down your spending. Part of living financially stable is not spending all your money that you earn. This will help you not feel the need to go to payday loan stores.
Generally you want to pay yourself first. This means taking some of your income to put into savings and investments.
The rest of the money you can use for yourself, but when spending your money, ask yourself if you think you need as many things as you do. A new shirt or new phone can wait a few more months. You may not need that new TV when you current TV works fine.
If you follow these rules then you will be wealthy one day. The trick is having the discipline to stay focused and not blow all your money away.
All Summed Up
It’s important to remember that while payday loans have their purposes and are useful they can a risk to use if you are not prepared to pay back what you borrow.
Collection companies don’t have the right to harass you or file criminal charges. If they do harass you then you can call the court or the police to intervene. They can, however, file a civil case against you and force you to pay what you owe.
The best defense against payday loans is to never use payday loans in the first place. Start practicing good money habits. Spend less, save, and invest more. If you do these things well, you will never have to go to a payday loans place ever again.