Defaulting on a short-term loan leads to negative consequences for the borrower. Collection calls, overdraft fees at the bank, a credit score in free fall, and more plague individuals who cannot pay their loan as agreed. If the situation continues, this individual faces a court case and garnishment of his or her wages. Many borrowers assume the lender won’t take such drastic steps for a small sum of money, but nothing is further from the truth. The lenders know the borrower signed a binding legal agreement when they provided the funds, and they use every measure possible to recoup their money, any legal fees associated with doing so, penalties, and more. What do borrowers need to know about defaulting on a short-term loan?
Bank Withdrawals
Depending on the terms and conditions of the loan, a borrower might find the lender keeps access to their bank account. Any time funds hit the bank, the lender initiates a withdrawal and gets the funds. The lenders might take the step of breaking a payment up into small ones to withdraw money from the account. When they do so, if the charge doesn’t go through, the borrower finds bank fees add up and they get further behind. Borrowers can see more at kingofkash.com about the importance of paying the loan on time.
Additionally, the borrower could find they have no money in their account and they have paid other bills. When the bank attempts to fulfill these payments, there are no funds to do so. This leads to a bank charge and a charge from the company that goes unpaid because of the lack of funds. This becomes a vicious cycle, one which many borrowers find difficult to break. A bad financial situation becomes much worse in very little time.
Collections
Lenders also call the borrower when a payment goes past due or they miss one. Some companies call friends and relatives listed on the initial application, or they might even go online and look for relatives and friends to contact. While federal law prohibits lenders from sharing their identity or information about the debt, they can request help in locating the borrower. In addition, they may get a lawyer and send collection letters to push the borrower to settle the debt.
Jail Time?
Bill collectors often make threats when speaking to a delinquent borrower. Debtors must know the law, as bill collectors can bend them or even break them. They count on the debtor not knowing their rights and benefit from this. Borrowers do not need to fear jail time because the law doesn’t consider a failure to repay borrowed funds a criminal offense today. Current law prohibits lenders from threatening to arrest someone or put them in jail if they don’t pay their debt. However, some providers and collection agencies benefit from bad check laws. They use these laws when filing a criminal complaint, and a judge then rubber stamps the complaint.
If they have threatened you with arrest or jail time for failure to pay a debt, the Consumer Financial Protection Agency recommends you contact your state attorney general’s office. Don’t ignore any court orders. Appear in court and explain the situation, especially when the lender filed a criminal complaint without cause.
Speak to the Lender
Contact the lender to discuss payment arrangements. Lenders prefer working with their clients rather than handing accounts over to outside collection agencies. When they hire an outside firm to collect the debt, they lose money. These debt collectors purchase the debt for a fraction of its value, and lenders must write off the rest.
Talk with the lender to see if they will take a lesser amount to settle the debt. If they agree, request the agreement in writing. Make certain it states the balance will go to zero once the agreed-upon reduced payment has been made. If the lender remains hesitant to work out an agreement, explain bankruptcy might be the only other option. Lenders recognize they get nothing in a bankruptcy and are often willing to take whatever they can get.
Regardless of which path a debtor takes, it falls on them to know their rights and responsibilities. Collection agents have been known to show up at a debtor’s job to harass them, call multiple times within the same day, and make threats to get the debtor to pay. While many practices remain permitted under current law, the collection agencies must operate within certain guidelines. Any deviation from these guidelines benefits the debtor if they know to take action. Make sure you are knowledgeable in this area, as no debt collector should be allowed to abuse debtors and get away with it.
Going to Court
Debt collectors sue for small sums of money. A borrower might believe they won’t because attempting to collect on the debt would take more time and effort than the provider will invest. Don’t make this assumption, as doing so could harm you.
If the lender or someone on their behalf sues, don’t ignore it. They often win simply because the debtor failed to appear in court. Most lawsuits today involve small amounts of money. The lender counts on the borrower not appearing in court, knowing they will get a summary judgment in this situation and the court will act on their behalf to collect the money.
When this happens, the borrower might find the court has imposed a property lien, levied a bank account, or is garnishing their wages. Appear in court, request proof that you actually owe the funds, and make them present this proof. A failure to do so by the lender or its representative leads to the lawsuit being dismissed.
Additional Options
Borrowers should never pay a loan before keeping food on the table or a roof over their head. Cover basic needs first. Fortunately, many men and women find they can obtain help with their rent, food, or utilities with the aid of a community assistance plan. Nonprofit credit counselors, legal aid groups, and bankruptcy attorneys also provide advice to individuals struggling with their finances. A person shouldn’t file bankruptcy over a small debt. However, those who owe more than half of their income in unsecured debt may need to consider this option.
Debts don’t disappear on their own. The borrower must be proactive when handling a financial crisis. Men and women who work to resolve the debt find doing so becomes easier, as lenders want to work with their clients. Start by contacting the lender. You never know what they can do for you until you ask.
