A fast loan comes in extremely handy when you are in need of cash in case of an emergency. In these situations, you might be thinking of taking a payday loan or personal loan. While this financial aid can bail you out of the crisis instantly, you may not be in a position to repay the loan on time. So, your credit score would get a red mark. Now, you would be wondering for how long this unpaid payday loan would be bothering your credit score.
Remember, the interest rates for payday loans come with exorbitant interest rates. Besides, you need to shell out fines and penalties. Ultimately, you would find yourself financially stressed, and can even face legal actions.
An unpaid payday loan would stay on your credit record for six years.
What can happen in case you default on your payday loan?
The consequences of failing to pay off your payday loan on time can invite several serious consequences. Some of these include:
1.Additional interests and fees
Based on your creditor and location, you would be facing additional penalties and charges when you are unable to repay the payday loan. This can eventually jeopardize your ability to pay off the principal amount along with the interest altogether.
2.Poor credit score
Defaulting on your payday loan would damage your credit score. This can potentially deprive you of your financial privileges like loans. Moreover, once your credit record sustains a stain, it might take several months to recover. No one likes to get their credit score damaged due to financial irresponsibility.
3.Debt collection harassment
Most creditors would try to attempt to collect the amount from the borrower within two months of the default. In case you fail to make the payment, they would entrust the task of collecting the payment to a debt collection agency. This might lead to embarrassing situations, as they might visit your residence or office. Apart from this harassment, you would be receiving legal notices and letters until they get the money.
In case your creditor is aggressive in debt collection, you might even land up in legal troubles. Court summons is not uncommon for short term loans defaulters. Based on your location, this can lead to liens against the property you own. Also, this can lead to wage garnishment under extreme situations.
Remember, an unpaid payday loan can haunt your credit score for six years. In some countries, this red mark would remain on your credit report for seven years. So, you would be in trouble when you try to obtain other loans to ease up your finances.
Rebuild your credit score after a payday loan default
In case you had taken a payday loan or no credit check loans and couldn’t make the payment on time, make sure to be proactive while rebuilding your credit score. Try to pay off the loan amount along with the interest, fines, and penalties in one go. This would help you regain some financial credibility. Next, try to reduce your credit utilization ratio and continue to make the payments on time. This would help you improve your credit score to a certain extent.