What Happens — and What To Do — If You Don’t Pay Back a Payday Loan?
Defaulting on a payday loan could drain your bank account and trigger collection calls. Try to settle the debt if you can.
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Many people use payday loans to cover a cash shortage, but because of the loan’s high cost and short turnaround time, it may be difficult to pay it back on time.
Defaulting on a payday loan can have consequences such as additional fees, collection calls and damage to your credit score. If you ignore the debt for too long, you could face a lawsuit and the possibility of having your paychecks garnished.
What happens if you don’t pay off a payday loan?
If you don’t repay a payday loan by its due date, the lender will consider it to be in default. Here's what you can expect to happen next.
You’ll likely be charged fees
Once your loan is due, a payday lender will withdraw the money from your bank account, if you've given them access as part of the loan agreement. If the debit doesn't go through, the lender may make multiple attempts to withdraw funds from your account. Each failed attempt can trigger a bank fee against you.
A successful attempt could drain your account and cause other transactions to bounce, also resulting in fees.
Some payday lenders may also charge late fees for missed payments.
There may be collection calls
If your loan remains in default, lenders may call you, send letters from lawyers and contact the relatives or friends you used as references when you took out the loan. By federal law, debt collectors can only ask for help in locating you — they can’t explain your debt situation to anyone.
If a payday lender contacts you directly, know that it’s illegal for them to threaten you with arrest or jail time. Additionally, collections agents cannot call you incessantly or make false statements or threats about the amount you owe.
Though failure to repay a loan is not a criminal offense, some payday lenders have succeeded in using bad-check laws to file criminal complaints against borrowers, with judges erroneously rubber-stamping the complaints.
The Consumer Financial Protection Bureau advises anyone threatened with arrest for nonpayment to contact their state attorney general's office. You should never ignore an order to appear in court, even if the criminal complaint was filed mistakenly.
You may be taken to court
On that note, you can be sued for not paying back a payday loan, even if the loan amount is small.
Lenders typically win debt collection lawsuits because consumers don’t show up to court, according to a 2020 analysis from the Pew Charitable Trusts. The judge then enters a default judgment, and the court can begin to collect the money you owe on behalf of the collections agency.
You could face wage garnishments, bank account levies or property liens, so it’s important to show up in court if you get a summons to appear.
Your credit score may drop
Although your payday lender may not report late payments to the three major credit bureaus, your credit could be damaged if the debt goes into collections.
Collection accounts can stay on your credit report for seven years and can affect your ability to be approved for credit in the future.
» MORE: How to build your credit score
What to do if you can’t repay a payday loan
You may have options to get out of payday loan debt, including extending the loan or settling the debt for less than you owe. It’s not worth filing for bankruptcy over one small debt; however, you may want to consider it if your unsecured debts — including payday loans, credit cards and medical bills — total half or more of your annual income.
Request an extension
Some payday lenders may give you the option to roll over or renew the loan. This means you can delay repayment of the loan for an additional fee.
For example, if you borrow $100 for a $15 fee and can’t pay it back after two weeks, you might be able to extend the loan for another two weeks by paying an additional $15. You’d still owe the original $100, plus $30 in fees.
Though a rollover may provide short-term relief, it can greatly increase what you owe, making it harder to get out of debt.
Did you know...
Negotiate the debt with a payday lender
The good news is a lender would rather collect money directly from you than sell your debt to an outside collections agency. Third-party debt collectors may pay the lender just a few pennies on the dollar to buy your debt. If you can, start by offering 50% of what you owe to settle the debt.
Get any agreement in writing, and make sure the document states that your balance will be reduced to zero.
Seek professional advice
For one-on-one advice on what to do if you can’t repay a payday loan, consult with a nonprofit credit counselor, bankruptcy attorney or legal aid center. These professionals may be able to assess your unique financial situation and advise you on your next moves.
Look into other ways to get the money
A boost of income or a new loan can help you settle your payday loan debt. Look for ways to find fast cash such as selling household items or picking up a side gig.
If you’re not in a position to qualify for a traditional installment loan, consider asking for a loan from a family member. A family loan can have a more flexible repayment plan. Just be sure both parties agree to the terms and get it in writing.
» MORE: Alternatives to payday loans
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