"A small lie is better than a painful truth" is a saying that has been heard by one and all. However, it may not be applicable to all situations. In terms of default it is a lie that default on payday loan will have little impact on the borrower. The plain truth is that default of any amount is a default and will get treated as one. It will have a negative impact on host of fronts for the borrower. Some people have this misconception that small ticket loan, that a payday loan is, will not impact them as much as the larger ticket loan default would. Let us look at how a default, irrespective of amount, will affect the defaulter.
The loan extended by the lending institution is bound by the agreement signed before the disbursal. And the first obligation of the agreement is timely repayment of the instalments. In case of delay or default, there are penal charges and interests that get levied. This leads to an increased outstanding. An extended delay will result in ever increasing penalties. There may be a situation where the accrued penal amount is greater than the principal outstanding.
The defaulter will also need to deal with the recovery agents. While it all starts with a soft call putting up a reminder on missed payment, the intensity continues to increase as the months pass by. Dealing with the collections’ calls and in person visits can be daunting and stressful. While the Reserve Bank of India has laid down rules for recovery agents as well, they would definitely persist and put pressure on the defaulter to pay up the amount. To avoid the recovery agents is also not a viable option since their follow up is continuous.
The lending institution may decide to initiate a legal action. While there may be some people who rightly are aware that the decision on such cases takes a long time. But they fail to foresee that they will have to face the hassle of visiting the court and would not be able to avoid it for very long. Also the legal expenses would need to be borne by them. So not only this will cost the defaulter money but also valuable time. Notwithstanding the hassle of legal proceedings, it is an expensive affair.
One’s credit profile is as important as the physical well being. Akin to physical fitness that would keep the individual going, the credit wellness will keep the individual have access to credit and funding all along. We know for sure that loans are an integral part of our lives today and inaccessibility to these instruments can have a detrimental impact on the achievement of financial goals. Once the person defaults, his name gets updated in the loan defaulter list which definitely is a bad news.
Once the person’s credibility gets impacted, he would cease to have access to loans. There may be a situation where any kind of credit facility will not be accessible. There are people who have the wrong conception that a default on a smaller ticket facility like a payday loan will only impact the availability of smaller loans. It definitely has the potential and a large probability to have the credit applications of larger ticket facilities like personal loans or even secured lending products like home loans meeting the fate of rejection.
Whenever a person faces a situation of defaulting on any kind of loan, he must be aware that there will not ever be a situation where he would be able to escape from his responsibility of repayment in full to the bank.