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As payday loans are unsecured, there is no protection (or collateral) within the loan, and a lender would not be able to seize your home.

Even though your home may not be seized if you do not pay back your payday loan, there are other consequences for not doing so.

Secured debt is credit that is secured by a property, such as a car or a house. If you fail to repay the loan or debt, the creditor may seize the collateral in lieu of initiating a debt collection process or filing a lawsuit against you.

What are the consequences of not paying back a payday loan?

A default on a payday loan carries several severe consequences, including:

Extra charges and interest

If you cannot pay back your payday loan, you may incur additional fees, depending on your location and choice of lender. These fees are known as “nonsufficient funds” (NSF) fees, and they are assessed when you do not have sufficient funds to cover a transaction.

Debt collection exercise

Your lender will try to collect payment from you for approximately sixty days. If you cannot pay within the specified time frame, the creditor will likely turn to a debt collection agency. You can anticipate regular phone calls and written correspondence from the debt collection agency until they receive payment. Their efforts are substantially more assertive than those of your lender.

Poor credit rating

Your credit score should be fine if you timely repay your payday loan. In contrast, your credit score will decrease if you fail to repay your loan and your debt is turned over to a collection agency.

Court summons

There is a possibility that a debt collector will sue you, even if the amount of money you owe is small. Based on where you reside, this could lead to property liens or even wage garnishment.

Difficulty in obtaining future funding

Since a missed payment on a payday loan can stay on your credit report for up to seven years, it may be hard for you to get more loans in the future.

Can I lose my home over not paying back a payday loan?

No, you will not lose your home for defaulting on a payday loan.

However, if a lien is placed on your property, you will be unable to sell it unless you pay off your debts. If a lender threatens to seize your home because of a delinquent, unsecured loan, you should take the necessary further legal action or contact an attorney.

Even though your home might only be seized if you pay back your debt, there are still consequences for not doing so. It is possible to incur late fees, which makes the already expensive type of credit even more costly.

You may also be required to pay a higher interest rate, considering that the average APR for payday loans is 400%, which will be pretty high. In extreme cases, legal action could be taken against you. Even though you won’t go to jail, you risk getting sued.

What is the difference between a payday loan and a secured loan?

A payday loan is an unsecured debt. Unsecured debt is a typical type of debt that is not backed by property. If you fail to make these loan payments, the lender has no assets to take to recuperate its losses.

In lieu of fines, the credit score will decline and the debt will be transferred to creditors.

Secured debt is credit that is secured by a property, such as a car or a house. If you fail to repay the loan or debt, the creditor may seize the collateral in lieu of initiating a debt collection process or filing a lawsuit against you. The most prevalent form of secured debt is a loan in which the borrower agrees to pledge collateral.

  • Collateral requirement: In contrast to secured debt, supported by property as collateral, payday loans are unsecured. Therefore, if you go for the latter, you won’t have to worry about endangering your asset.
  • Financing terms: Secured debt products typically have lower interest rates. You may be eligible for a larger loan limit and a longer payback term. On the other hand, payday loans have higher interest rates and shorter maturities. These rates and conditions can be very restrictive for borrowers with a short credit history or poor credit.

What is a lien?

A lien is a legal right granted by the property owner to the creditor to assert a security interest in the property. It usually serves as a guarantee for a legal obligation, like paying back a loan.

If you have a lien on your home, you will not necessarily lose it. However, it does indicate that you must pay off your debts before selling your home.

Types of Liens

  • Tax liens: If a person or business fails to pay federal or local taxes, the Internal Revenue Service or another government agency may impose a tax lien for the value of unpaid taxes.
  • Mechanics lien: The most significant sort of lien for construction projects is a mechanical lien. Every state has legislation granting construction companies and laborers the power to assert a mechanics lien.
  • Judgment lien: Judgment liens are the direct result of litigation. The judge will impose monetary damages if a person is involved in a lawsuit and losses.