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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18 Responses

  1. 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!

      Cheers,
      Joshua

  2. 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.

      If you do not make payments on your loan, 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!

      Cheers,
      Reggie

  3. 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!

      Cheers,
      Joshua

  4. 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!

      Cheers,
      Joshua

  5. Default Gravatar
    GinaSeptember 9, 2018

    I have had a woman call and say she is taking me to court if I don’t pay back so much by the 23rd and I did and that I have one payment let to make and i have been told it’s a scam payday lenders can’t take you to court and can’t garnish wages when on social security

    • finder Customer Care
      JoshuaSeptember 10, 2018Staff

      Hi Gina,

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

      Generally, you can’t be arrested for unpaid debt. However, lenders have the option to sue you for assets and if the court favors the lender, then you need to abide by the court’s decision. A judge may put a lien on your personal property or allow a lender to garnish your wages. Not complying with the court may lead to jail time.

      It would be a good idea to renegotiate your debt with your lender. You may also want to speak to a legal expert to know more about your right.

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

      Have a wonderful day!

      Cheers,
      Joshua

  6. Default Gravatar
    JaneAugust 9, 2018

    I borrow money through online lending and it was due date, can they file case against me if still not pay, im here in the phillipines.. Thank you..

    • finder Customer Care
      joelmarceloAugust 9, 2018Staff

      Hi Jane,

      Thanks for leaving a question on finder.

      If you find yourself at risk of defaulting on a loan, try to get in touch with your lender first to explain your situation and attempt to negotiate your repayment terms. You may be able to offer entering into a repayment plan to avoid collection agencies who may contact you, your workplace or even the character references you have included in your application. We have no data on finder on how it is being done in the Philippines but generally when you miss a payment, the loan company may start calling you to see what caused the delay. Non payment of a loan can also hurt your credit score and decrease your chances in getting approved for a loan in the future. Hope you get through this difficult time.

      Cheers,
      Joel

  7. Default Gravatar
    ShayJune 6, 2018

    If wage garnishment is not legal in Texas, except for taxes child support and student loans, how are they able to garnish my check?

    • finder Customer Care
      nikkiangcoJune 7, 2018Staff

      Hi Shay,

      Welcome to finder! Thanks for getting in touch.

      In general, this is a lender can garnish your check but only if a court has so ordered it. If a judge rules against you, the collection agency, depending on your state’s laws, can 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.

      Hope this clarifies.

      Regards,
      Nikki

  8. Default Gravatar
    shanerbJanuary 24, 2018

    My mom and gma are getting calls saying im a defendant in a civil suit and must appear in court in Utah.
    The ONLY shady things i pulled while there were payday loans. That’s the only thing out could be. And no way do they total more than$1,000 or $1,500. I didn’t have a good job and couldn’t borrow a ton.
    So, what do i do? AM i going to jail? What’s this civil suit mean? Can i tell mom and gma not to worry? Can i not worry!?
    Thank u.
    Sincerely, shizzane

    • finder Customer Care
      joelmarceloJanuary 26, 2018Staff

      Hi Shizzane,

      Thanks for leaving a question on finder and sorry to hear about your difficult situation. It could be really hard to get out of debt sometimes. However, please be assured that you won’t get in jail because of your civil debts. Although lenders will do their best to collect payments from you and use debt collection agencies to do this.

      So, it would be best to contact your lender first to explain your situation. Try to negotiate your repayment terms as well, this way, you might be offered for a repayment plan which could prevent you from appearing to court.

      In case that the debt collection agency sent you court summons, just show up in court and ask for proof of your debt. If they can’t show any proof, you may reschedule the proceedings. If you think you’re being harassed by the collection agency, remember your rights, then try to seek professional advice from your state’s attorney general or the Consumer Financial Protection Bureau.

      I hope this helps you not to worry about the civil suit.

      Cheers,
      Joel

  9. Default Gravatar
    DimplesJanuary 17, 2018

    I have two payday loans out….I have a repayment plain to pay back but their too much. Each week what happens if i cant pay it?

    • finder Customer Care
      RenchJanuary 18, 2018Staff

      Hi Dimples,

      Thanks for reaching out to us. Please note that we are not affiliated with any company we feature on our site and so we can only offer you general advice.

      As the lender tries to collect your debt, they continue to try withdrawing from your bank account, using the information you provided. If the money isn’t there, they 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.

      You may 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.

      Best regards,
      Rench

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