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What could happen if you don’t pay back your payday loan

Prevention is best. Avoid trouble by understanding the consequences of defaulting on a payday loan.

Perhaps you didn’t have the cash on hand to repair your car or your electric bill spiked thanks to a heat wave. Maybe you didn’t have enough to get you through until your next paycheck. Whatever the reason, the need for immediate money drove you to a payday loan lender. If you’re worried about paying it back, don’t panic. Instead, get informed and learn what you can do if you risk defaulting on a loan.

Why is it so easy to get into trouble with a payday loan?

Payday loans may seem like a solution when you’re in need of quick money, but they can prove overwhelming — especially if you’re already struggling to pay off your debt. The two main components to payday loan default are easy access to money and the expensive fees that come with it.

Easy access

Payday loans are easy to get, both in person or online. All you need is an ID, a checking account and a source of income. The lender allows you to borrow a certain amount of money for a fee, and you write a post-dated check for the loan repayment or give the lender permission to pull funds from your bank account on your next payday. This easy access means you may not think about how much the loan costs, especially when the lender presents your interest as a “small fee” of $10 or $15 per $100 borrowed.

Expensive fees

It’s not uncommon to see payday loans with an APR of 400% or more. Because of this, many people end up paying off interest rather than principal and risk risk defaulting on a loan they can’t afford. This is made worse by offers of refinancing. Lenders may offer a borrower the opportunity to “roll over” the loan, but they charge a new fee each time the loan is extended. These fees lead to more money trouble, often creating debt that can last months or even years.

What happens if I don’t pay back a loan?

As a lender tries to collect your debt, it will continue to try withdrawing from your bank account, using the information you provided. If the money isn’t there, it can continue trying, sometime breaking up the loan into smaller parts. This won’t only get you into trouble with the lender, but your bank may also charge you overdraft fees every time your balance is insufficient when the lender attempts to withdraw money.
And this is when the phone calls start. Lenders and collection representatives will use all of the information you provided — phone numbers at your job, email addresses, and even family members or friends — to contact you for payments.

Payday loan tornadoes: getting caught in a debt spiral

In the face of a payday loan deadline, some borrowers may decide to take out another payday loan to keep up with fees and debt. But this only makes the situation worse. Debt swirls around the borrower. If this is you, you’re trapped in what’s known as a debt spiral or payday loan tornado. Instead of potentially defaulting on just one loan, you’re looking at defaulting on several. This can add to your debt rather than cure it, making it that much harder to pay back what you owe and get yourself on solid financial ground once more.

What can I do if I default?

If you’re in risk of defaulting on a payday loan, contact your lender to explain your situation and attempt to negotiate your payment terms. You may be able to enter into a repayment plan to avoid having your loan send to collections and needing to appear in court. During this negotiation process, you should work on your budget. Find places where you can cut spending and cut it — even if you don’t default, you’ll still need to pay the original fees you took out for borrowing.
You may also want to consider a way to consolidate some of that debt to lower the interest rate. There are bad credit personal loans available, so you may qualify even if this default has impacted your credit score. Local banks and credit unions usually offer small loans that can help you move your debt from high-interest collectors. Discuss your situation and be upfront. It may take a month or two to qualify, but if you’re at risk of defaulting or have defaulted, a small loan from a credit union could reduce the amount you pay in interest, potentially saving you hundreds.
Sometimes, though, default is inevitable. If you do receive a court summons, be sure you ask the collector to show proof that you owe the money. If they bring no proof, you may have grounds to postpone proceedings until they do.

Can I negotiate my debt?

Yes, you can renegotiate your debt. In fact, it’s generally considered a good idea to do so. This is because many lenders want something, even if it’s not the full amount. Discuss your financial situation with your lender. It may be willing to settle for less than you owe. However, be sure to get this in a written contract as a settlement agreement. This can hold up in court if your lender decides to sue for the full amount, and it may help stop any harassing phone calls from collectors and avoid fees for missing payments.

Can a lender send me to collections?

Yes. Though a payday lender would rather squeeze the money out of you directly, it can and will turn to third-party collection agencies, often very quickly — sometimes within 30 days of your missed payment deadline.

Collection agencies tactics

Collection agencies exist only to collect debts, and exerting pressure on you is a big part of their arsenal. They can be aggressive, so expect an escalation of collection attempts by:

  • Multiple phone calls at home and work.
  • Showing up in person.
  • Threatening to notify the credit bureaus.
  • Threatening to sue you.

What can I do if I’m being harassed by collection agencies?

Each state and city has its own laws regarding payday loans. If you’re being harassed by a collection agency, your most important step is to become informed about your rights and obligations under the law, including what agencies can and can’t do when trying to collect the debt.
When dealing with a collection agency, know that it’s trying to scare you into paying whatever you can. Instead, stand firm when dealing with these aggressive collectors.

How am I protected by the Fair Debt Collections Practices Act?The Fair Debt Collections Practices Act is a federal law that prohibits debt collectors from using abusive, unfair or deceptive practices to collect from you. Among the rules they must follow, a debt collector cannot call outside the hours of 8 a.m. to 9 p.m., call you at work, verbally abuse you or call your friends or family to collect on a debt.
If you receive a call that violates your rights, be firm with the caller. Tell them that you know your rights and that they must stop immediately. And then register a complaint with your state’s attorney general or the Consumer Financial Protection Bureau.

Can a lender garnish my wages?

Yes, but only if a court has so ordered it. If a judge rules against you, the collection agency may be able to levy your bank account, garnish your wages or put liens on your property. In many states, these orders can remain in place for up to 10 years.

Can I go to jail if I can’t repay a payday loan?

No. According to federal law, you can’t be arrested for unpaid debt. But that hasn’t stopped some debt collectors from threatening people with jail time. This is an illegal practice, so if your lender attempts this, don’t feel threatened to comply. You may even be able to report the lender to your state’s attorney general for illegal practices.
However, you can get jail time if your lender successfully sues you for assets and you refuse to comply. If a judge puts a lien on your personal property or allows a lender to garnish your wages, you’re required to abide by this decision. Not doing so can put you in a bad position that can include jail time.

Bottom line

Payday loans are meant to tie people over until their next paycheck. But they can put you at risk of greater financial jeopardy. Consider a short-term loan a last resort for true financial emergencies. After you compare your options for a short-term loan, carefully review the terms and conditions of the loan, asking questions to resolve any concerns you have. And research the reputation of the lender you’re considering before signing any contract.

Frequently asked questions

Are payday loans regulated?
Yes, and every state has different laws regarding them. For information on your state’s laws, check out our guide on payday loan laws by state.
Besides payday loans, where else can get money if I’m short on cash?
Often people don’t want to rely on family or pawn their possessions in a cash emergency, yet a payday loan could expose you to doing just that if you find yourself unable to repay it. Learn about alternatives to payday loans before you sign any contract.
Who can I turn to if I need assistance regarding payday loan harassment?
Contact the Consumer Financial Protection Bureau, a government agency that protects consumers. If you’re being threatened for nonpayment, contact your state attorney general and file a complaint with CFPB.
What happens if I default on other types of loans?
Defaulting on any loan will cause your credit score to take a hit and comes with the risk of legal action. And if your loan was secured with collateral, your lender has the right to seize it and sell it to recoup the losses.

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44 Responses

    Default Gravatar
    CodyJune 11, 2019

    If you don’t pay a payday loan back, is that a felony?

      JhezJune 12, 2019Finder

      Hello Cody,

      Thank you for your comment.

      A felony is traditionally considered a crime of high seriousness, and not paying back your payday loan is not a felony. If you don’t pay your loan, you eventually default on that loan. The result is that you’ll owe more money as penalties, fees and interest charges build up on your account. Your credit score will also fall. It may take several years to recover, but you can ​rebuild your credit.

      It’s always right to repay your loans on time and be a responsible borrower.


    Default Gravatar
    ToshmonsterMay 2, 2019

    If I am homeless, what are my options on getting help to pay off a loan or have it reduced?

      MaiMay 3, 2019Finder

      Hi Toshmonster,

      Thank you for reaching out to Finder.

      You may contact your lender and check available options on how you can pay off your loan. You can try to negotiate with them to avoid getting multiple charges or high interest rates. They will be your first contact if you need assistance on how you can pay them off as they may have alternatives or solutions for clients who are default on payment.

      Hope this helps! 😊

      Kind Regards,

    Default Gravatar
    KelMarch 19, 2019

    Can a third party take from my bank account for the amount owed?

      JeniMarch 20, 2019Finder

      Hi Kel,

      Thank you for getting in touch with Finder.

      I’m afraid that you would need a professional advice from a lawyer on this matter as this depends on the state law in which you live and your specific circumstances.

      I hope this helps.

      Thank you and have a wonderful day!


    Default Gravatar
    AnonymousFebruary 28, 2019

    Can I go to jail for not paying my payday loan?

      JoshuaMarch 3, 2019Finder

      Hi Anonymous,

      Thanks for getting in touch with Finder. I hope all is well with you. :)

      Generally, you won’t go to jail just because you haven’t paid your payday loan. However, please note that if the lender has successfully brought the case to the court and they got a court order and you failed to comply, you might potentially go to jail.

      I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.

      Have a wonderful day!


    Default Gravatar
    MalintaFebruary 25, 2019

    I took out a pay day loan in ohio for $500.00 it was a monthly pay day loan cause I’m on disability. Well they said state is shutting them down an they can not do any more loans after march 15th . ok they said i would have to pay $ some change for 6 months . well i got home to look over all my bills i paid an added up that loan an its gonna cost me $ 1032.00 to pay back . that’s dollar for dollar. CAN THEY DO THAT ????

      johnbasanesFebruary 26, 2019Finder

      Hi Malinta,

      Thank you for reaching out to Finder.

      Depending on the contract that you have signed with them, there may be a clause that would be stated on fees and rates as well as penalties that may be imposed by the company. You may want to seek legal advice regarding this to ensure that there is legality in what they are doing with regards to the loan you took out with them. Hope this helps!


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