Benefits of Payday Loans versus Loan Default
Is a payday loan a responsible solution to a temporary budget shortfall, or is waiting a few days to pay a bill a better option? While some creditors and lenders may offer grace periods or may be willing to negotiate a bill due date, many will penalize missed due dates by placing a loan in default.
There are two primary ways a borrower can default on a loan. In both instances, the damage done to a borrower’s credit can be long-term. Debt Services Default A debt services default is defined as a missed scheduled payment as determined in the terms of a loan or mortgage agreement. While waiting a week to make a payment may not seem serious, missing a bill due date has the potential to negatively affect a credit score or relationship with a lender just as much as not making the payment at all.
Technical Default A technical default is defined as any violation of any term of your loan or mortgage agreement. Most commonly, technical default happens when your income falls below an agreed upon amount, which is called an affirmative covenant.
Most loans carry a short grace period, and lenders typically contact the borrowers directly prior to placing a loan in default. However, once a payment is delinquent by thirty days or more, a lender will begin regular contact to attempt to collect the past due debt. If this proves unsuccessful, the lender may turn to a collection agency for debt recovery. If the delinquency is not resolved, lenders have the option to legally have payments automatically deducted from a borrower’s paycheck, and to seize tax refunds.
To avoid the consequences of delinquency and default, borrowers generally take steps to not overextend their budgets. If the ability to pay a bill on time is due to an unforeseen shortfall, communicating the situation directly to the lender is often the next step. A payday loan is a responsible alternative to allowing a loan to be placed in default status by a lender, particularly if the budget shortfall is short-term.
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