If your credit is in good shape, consider applying for a debt consolidation term loan and use the proceeds to pay off your merchant cash advance loan. If you're in MCA default, the sooner you can repay what you owe, the less of an impact it'll have on your business and possibly even your personal credit history.
You can legally stop automatic payments on a payday loan by revoking the Automated Clearing House (ACH) authorization that gives a payday lender permission to electronically take money out of your bank account or credit union.
Even if you have not revoked your authorization with the company, you can stop an automatic payment from being charged to your account by giving your bank a “stop payment order.” This instructs your bank to stop the company from taking payments from your account.
At some point, the payday lender might send your debt to collections. In the end, you may owe the amount you borrowed, plus the fee, overdraft charges, bounced check fee, possible collections fees, and possible court costs if the payday lender or collection agency sues you.
If You Miss a Payment, You Are In Default
That includes the right to sue you and your business. In most cases, MCA lenders require that business owners sign a personal guarantee to get the merchant cash advance. If you had to sign any type of personal guarantee, you may be personally liable for that business debt.
Step 1: Call Your MCA Company and Request Hardship Relief
Inform the funder that you are having a difficult time and ask if they can modify your payment structure, or possibly allow a forbearance period of temporarily suspended payments, while you work through your current difficult period.
If you don't repay your loan, the payday lender or a debt collector generally can sue you to collect. If they win, or if you do not dispute the lawsuit or claim, the court will enter an order or judgment against you. The order or judgment will state the amount of money you owe.
At that stage, the bad debt will almost certainly show up on your credit reports because most collectors furnish information to the credit reporting agencies. If that happens, it will stay in your credit file for seven years and be negatively factored into your credit scores.
Some, but not all payday lenders will negotiate with you. At the end of the day, they care most about getting their money back. Some have a strict no-negotiation policy, and others will only negotiate if you stop payments and can demonstrate that you really can't pay. Either way, it does not hurt to ask.
2. Can you be arrested and sent to jail if you fail to pay your debt? Many borrowers default on a loan every day, and the common question they ask is whether nonpayment of the loan will result in imprisonment. The answer is no.
Debt settlement and bankruptcy may grant you payday loan forgiveness. Debt settlement involves talking to your creditors and negotiating a deal that will let you pay less than what you owe.
Payday lenders are good at making all sorts of threats, but can they sue you? Well, the answer to this is yes. A payday lender can take you to court for defaulting on a loan and if you violate the terms of your loan agreement. However, they can only take you to a civil court and not a criminal court.
Difficulty securing future financing: Since a payday loan default can stay on your credit report for up to seven years, you may have a tough time getting approved for other loans down the road.
However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money. A payday loan default can lead to bank overdraft fees, collections calls, damage to your credit scores, a day in court and garnishment of your paycheck.
No upfront fees are required. You only pay when you get results. A free consultation can help you decide if debt settlement is right for you. Get help settling credit card debt, medical debt, personal loans, payday loan debt, and even private student loans.
Failure to Repay Payday Loan Debt is Not Fraud
“Failure to pay back a loan is not necessarily fraud,” says Ben Michael, a criminal defense attorney at Michael & Associates. Fraud occurs when a person knowingly takes out a loan without intention of paying it back. It's a form of deceit.
Defaulting on a personal loan could result in:
Trouble securing credit in any form for years to come. Difficulty locking in a good interest rate even if you're able to secure credit in the future. Wage garnishment, if the loan was unsecured. Seizure of assets, if the loan was secured.
When a loan defaults, it is sent to a debt collection agency whose job is to contact the borrower and receive the unpaid funds. Defaulting will drastically reduce your credit score, impact your ability to receive future credit, and can lead to the seizure of personal property.
A merchant cash advance is best for a small business that needs some extra money to get their business to be more competitive and generally more functional. Not all small businesses can get bank loans to do all of the things they want to do.
Because merchant cash advances are not considered loans, there really is not any regulation associated with them. Merchant cash advance companies do not need to follow state usury laws which limit how much interest companies can charge on certain loans or credit cards.
A merchant cash advance consolidation is an option that lets you roll up all of those advance payments into one. Ideally, an MCA consolidation has the potential to cut down on what you're paying in interest and fees.