How defaulting on your payday loans affects your future spending

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What happens when a debtor fails to submit their payday loan monthly repayment installments?

The creditor will push forward the outstanding debt to the following month and immediately impose a rollover fee. If the debtor defaults for the second time, the creditor will either claim the deposited collateral or seek a court order authorizing account garnishing. However, this only applies where the debtor still earns a monthly income.

What happens when a debtor decides to abandon all commitment towards repaying their overdue payday loan?

  1. Tougher Mortgage Application Requirements

If the payday loan lender is unable to obtain their money, they promptly submit the debtor’s names to Equifax, Experian, and TransUnion. These credit-reference bureaus protect creditors from losing cash through lending loans to high-risk credit defaulters. Each bureau generates a debtors’ blacklist and circulates them to commercial banks and special credit lending institutions.

If you need a mortgage for a new home in future, the bank will demand a larger deposit compared to homebuyers with excellent credit history. This means paying 10-15 percent more of the minimum deposit. In addition to this high deposit requirement, the bank will impose higher interest rates on your monthly repayment plan.

Some banks limit the mortgage value available to creditors with poor credit scores. This means you cannot purchase high-end apartments or mansions on credit.

  1. High rejection rate from car dealerships

If you’re planning to lease the latest Mercedes, BMW or Cadillac SUV, you should first clear all your outstanding payday loans. Just like real estate companies, car dealerships use information provided by credit reference bureaus to process both lease and credit purchase applications.

Stains in your credit reports could lead to car dealerships offering you unappealing deals. This means settling for low-cost vehicles because the car dealer doesn’t want to spend time and money on repossession. You’ll also need to make larger deposits and agree to pay high monthly installments to win the car dealer's trust.

  1. Banks’ unwillingness to provide credit cards

Did you know that defaulting on your payday loans stains your credit score for at least six years?

Most debtors cancel their credit cards in order to pool enough money to repay overdue payday loans. If you canceled all your credit cards due to overwhelming debt, the credit card application process becomes harder. This happens because the bank lacks a source of reference to assess your credit scores.


Payday loan defaulters face a high rejection rate when applying for new credit cards because credit purchasing is a form of unsecured lending. Banks check the applicant’s credit score in order to determine their probability of repaying unsecured loans. Some applicants with poor credit history end up waiting for two years in order to receive a new credit card.

  1. Astronomical interest rates levied on subsequent payday loans

Payday loans determine the risk of loan applicants by viewing their credit history. A payday loan default report on your credit history could corner you into accepting high-interest rate repayment terms from your new payday loan lender.


No matter how small your payday loan is, you should commit yourself to full repayment. Paying your payday monthly installments on time improves your credit score. Hence, you’ll be better placed to receive good mortgages and low-interest rates on your credit card purchases and monthly car installments. Consolidate your payday loans now!

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