Is a payday loan a sensible solution to a cashflow problem or is waiting to pay a bill the better option?

While some creditors 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 or applying a fee.

There are two ways a borrower can default on a loan. However both cause damage to the borrowers credit history.

Default

A default is defined as a missed 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 the payment 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 late 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 pay.

To avoid the consequences if 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.