What to expect if you default on a payday loan | finder.com
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Here’s what could happen if you don’t pay back your payday loan

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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.

Find out if short-term loans cause bankruptcy and how to avoid defaulting

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.

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30 Responses

  1. Default Gravatar
    BillyFebruary 5, 2019

    I have a collection agency calling me telling me that I have an outstanding payday loan from 2011. They say that it is a breach of contract and not an outstanding debt and therefore it does not fall under statute of limitations for the state of NV. What does this mean and what should I do? It is over 7 years old and does not show on my credit either.

    • finder Customer Care
      JeniFebruary 13, 2019Staff

      Hi Billy,

      Thank you for getting in touch with finder.

      It would be a good idea to seek professional help from the experts on this matter. Please note that the creditor may pursue collection of a debt through the civil courts in the United States; however, debtors cannot be prosecuted in criminal court for not paying a debt. In addition, it is worth checking that you’re dealing with a legitimate debt collection agency.

      I hope this helps.

      Thank you and have a wonderful day!


  2. Default Gravatar
    RickJanuary 30, 2019

    I am trapped and overwhelmed with two payday loans for $500.00. I only have 100.00 left out of my check every two weeks so I’m thinking about closing my bank account and going to another bank. What can happen if I do this?

    • finder Customer Care
      JhezelynJanuary 31, 2019Staff

      Hi Rick,

      Thank you for your comment.

      If you will close your bank account where your lender automatically deducts your repayment, what will happen is you will most likely have to manually send your repayment to them. If you will not pay on time, could be late in your payment and could incur a late payment fee. This will make you pay more.

      So if you’ll open a new bank account, you still need to let your lender know. If you stop paying on a loan, you eventually default on that loan. The result would be you’ll owe more money as penalties, fees and interest charges build up on your account. Your credit scores will also fall. It may take several years to recover and borrow again.


  3. Default Gravatar
    TyronJanuary 13, 2019

    I took a 200$ payday loan at advance america about 2 years ago. Planning to repay it. Gave them all my info. Wrote a check. Proof of paycheck. Im a homeowner so proof of address. Everything they needed. At that time I was an addict to prescription pain killers after a major knee surgery and put myself in a rehab where i stayed for over a year. Finally realized my wife and kids are more important than drugs. 21 months sober now. When i was done with rehab i went to the store to try and repay it but now that store is closed. Yes i know there are other Advance America stores in different cities. This entire time we have never received anthing in the mail or my emails from them or collection. Ive checked my credit and all my accounts and there is nothing on there regarding this loan. Maybe its to early for it to be on there but i would think after 2 years I would have heard something. Im now working and have no problem paying it back. In fact would love to take care of it so I dont have to worry about it. Whats your thoughts on this? Please and thank you.

    • finder Customer Care
      johnbasanesJanuary 16, 2019Staff

      Hi Tyron,

      Thank you for reaching out to finder.

      Late payments remain on a credit report for up to seven years from the original delinquency date — the date of the missed payment. It may be possible that the lender missed to report this to the reporting agencies. It is advisable to speak with them directly to check if they still have your account and have it settled. Hope this helps!


  4. Default Gravatar
    MaryDecember 25, 2018

    I have 4 payday loans. I had to put my car’s registration up to get the loans. I am not able to pay anymore they took over my life. I can barely live. I’m disabled and work only part-time. I just keep paying for them. I can barely put food on my table. Can they take away my car? its all I have for a way to get to work.

    • finder Customer Care
      JoshuaDecember 25, 2018Staff

      Hi Mary,

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

      I’m sorry to hear about your situation, Mary. There’s a possibility that the lender would take your car or put a lien on it provided that they have a court order.

      The Consumer Financial Protection Bureau (CFPB) suggests that anyone struggling to pay back a payday loan talk to a credit counseling agency, which is free. The Department of Justice has a searchable database of government-approved credit counseling agencies.

      If you have a problem covering basic needs such as food, you may also visit USA Gov website to know your options.

      I really do hope that your situation would improve, Mary.

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

      Have a wonderful day!


  5. Default Gravatar
    ShayDecember 17, 2018

    My family received a phone call about an outstanding payday loan. The court referenced was not even in the county I took out the loan. The caller threatened my whole family in taking them all to court if it was not paid. This person claimed to be from the courthouse and ALL of my families information, birthdates etc. I have never provided any of this information for any loan I have taken out. Is this a scam?

    • finder Customer Care
      JoshuaDecember 18, 2018Staff

      Hi Shay,

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

      I’m sorry to hear about your situation. It would be a good idea to talk directly to the debt collector and check how you can resolve the issue. Negotiate a repayment plan if possible. Most lenders would like to get some sort of money from you rather not getting any at all.

      Moreover, in your case, it pays to know your right as well as obligation under the law. If you feel that you are being harassed, deceived, or abused by the collectors, The Fair Debt Collections Practices Act should protect you. You can lodge a complaint with your state’s attorney general or the Consumer Financial Protection Bureau.

      Now, regarding your information, some collectors would do almost anything just to get their money back. Thus, it is not surprising if they are able to locate your personal details and use it against you.

      Again, please work with the proper authority to ensure all things are done legally and properly.

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

      Have a wonderful day!


  6. Default Gravatar
    AngieOctober 25, 2018

    I recently got a registration loan, but now I have to declare in bankruptcy. Will this affect me in any way?

    • finder Customer Care
      JeniNovember 10, 2018Staff

      Hi Angie,

      Thank you for getting in touch with finder.

      Regarding your registration loan and bankruptcy query, I suggest that you seek expert advice from a lawyer on this matter. Payday loans are unsecured debt. The payday loan is likely to be discharged, since it is not secured and is not considered a priority debt. You may refer to this government page to learn more on bankruptcy.

      I hope this helps.

      Please feel free to reach out to us if you have any other enquiries.

      Thank you and have a wonderful day!


  7. Default Gravatar
    TracieOctober 4, 2018

    I just have what is called a relief Moon from my bank they took the loan amount out of my SSI check immediately after it hits the bank I renewed again the same amount that they took out now I cannot pay my bills can I go to jail if I stop my check from going to that bank

    • finder Customer Care
      JoshuaOctober 8, 2018Staff

      Hi Tracie,

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

      According to federal law, you can’t be arrested for unpaid debt. However, please note that there’s a possibility that the lender may successfully sue you for assets. If a judge sides with the lender, you’re required to abide by this decision. Not following court orders may lead to drastic consequences and that may include jail time.

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

      Have a wonderful day!


  8. Default Gravatar
    BrianSeptember 25, 2018

    I owe 1,000 on a American web loan what would hapoen if i dont pay?

    • finder Customer Care
      johnbasanesSeptember 26, 2018Staff

      Hi Brian,

      Thank you for leaving a question.

      We cannot provide a specific advice on what will happen if you can’t pay your loan with American web loan. However, generally, if you default on your loan payment the following may happen.

      1. The account will become delinquent and will move into a default status
      2. Under a default status, the company may file a case against you to be able to collect the amount owed. This may mean taking a portion of your wages or your tax refund. (Depending on the loan you took out)
      3. This default will hurt your credit score and may deny you in the future to take out additional credit. These marks may last from 7-10 years on your credit report.
      Hope this helps!


  9. Default Gravatar
    JimSeptember 23, 2018

    I’m on Soc Sec and after helping out several family members I found myself financially short. I receive my benefits once a month and made the mistake of going to a Payday loan to help me get by. Now I find myself in debt with three lenders and Im unable to pay. Can I file bankruptcy?

    • finder Customer Care
      JoshuaSeptember 25, 2018Staff

      Hi Jim,

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

      I’m sorry to hear about your situation, Jim. The first thing you may want to do is contact your lender. explain your situation. Try to negotiate your payment terms and seek for a win-win solution. Most lenders would rather consider your plea instead of getting nothing from you. Seek to enter a repayment plan to avoid having your loan send to collections and needing to appear in court.

      Now, if you believe that bankruptcy is something that would save you from this situation, then you may do so provided that you meet the needed requirements. Bankruptcy lawyers have your best interests in mind. They are dedicated to protecting you against unnecessary penalties. If you want to know more about bankruptcy, please read our guide, Compare debt settlement vs. bankruptcy.

      It would also be a good idea to seek legal advice from an expert.

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

      Have a wonderful day!


  10. Default Gravatar
    TashaSeptember 13, 2018

    I took out an internet payday loan. I paid most of it but now I am unable to pay the rest. I just read that payday loans are illegal in Arizona. If that is the case how were they able to give me a loan and I live in Arizona. Did they illegally give me a loan and if so can they garnish my check since payday loans are illegal in my state?

    • finder Customer Care
      JoshuaSeptember 17, 2018Staff

      Hi Tasha,

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

      Yes, a payday loan is illegal in Arizona since July 1, 2010. However, what remained legal is the installment loan. Make sure that the annual percentage rate (APRs) of your loan does not go beyond 36%. If it does, then you can report them to the proper authority. Lenders can no longer advertise the availability of short-term loans, with the exception of tribal lenders.

      If you believe that the loan you obtained is illegal, then they won’t be able to garnish your check. Please seek legal counsel to ensure that you’re legally abiding by the law.

      To learn more about payday loans in Arizona, please go to this page. It will also show alternative options available to you.

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

      Have a wonderful day!


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