What Happens if I Default on a Payday Loan? (2024)

FAQs

What Happens if I Default on a Payday Loan? ›

If you don't pay back your loan, the payday lender can send your loan to collections or take legal action against you. You may pay hefty fees for not paying on time, and your credit score can be adversely affected.

If you don't pay back a payday loan, it could be sent to collections, leading to financial consequences that could impact your credit, cause fees to pile up and make your financial situation even more challenging.

If you close the checking account to keep the lender from taking what you owe, the lender might keep trying to cash the check or withdraw money from the account anyway. That could result in you owing your bank overdraft fees. The payday lender might send your loan to collections. Then there will be more fees and costs.

Debt collection activity: Your lender will attempt to collect payment for you for about 60 days. If you're unable to pay them within this time frame, they'll likely turn to a third-party debt collection agency.

It is legal to lend money, and when you do, the debt becomes the borrower's legal obligation to repay. For smaller loans, you can take legal action against your borrower if they do not pay by taking them to small claims court.

The Potential Consequences of Not Paying Back a Cash Advance

This will result in constant attempts at collecting the money, which can cause stress and will likely appear on your credit report, which will have a detrimental effect on your credit and financing options.

If you're in debt, you may be wondering if your creditors can simply “take” your money by freezing your bank accounts and either taking what you owe them or keeping your account frozen until you pay them. The simple answer is “yes” they can do that.

However, if you do not repay a Cash Out Service or EarnIn is unable to complete a repayment to EarnIn that you authorized, you will be prevented from using the Cash Out Services until you pay any outstanding authorized payment to EarnIn.

On average, one in five borrowers default on their payday loans. More than half of all borrowers who got their installment loans from an online lender default on their balance. 80 percent of borrowers who were tracked over 10 months rolled over or reborrowed payday loans within 30 days.

Can a payday loan company come after you after 7 years? ›

If the statute of limitations has expired, and it likely has since the debt is over 7 years old, then you are not obligated to pay it. However, they may still attempt to collect on it, but they cannot sue you. Please be careful about "reviving" the statute of limitations.

Payday loan defaults can tarnish your credit report for up to seven years. During that time, any lenders you contact can access your credit report and view the details of your default. They will be weary of extending you an offer, and if they do, the interest will likely be astronomical.

The Payday Loan Trap

The less severe version entails paying only the interest charge on the loan (or some other fee) on the day repayment is due in full. This extends the loan without paying it down at all; the total amount owed on the original loan is due again, two weeks later.

For repayment, you generally write a postdated check for the loan balance plus any applicable fees or authorize the payday lender to electronically withdraw the funds from your account. If you don't repay the loan on or before the due date, the lender can cash the check or withdraw the amount from your account.

Payday loan debt settlement is the process of working with payday lenders to negotiate repayment for less than what is owed. Typically, a third-party service acts as a go-between for the borrower and lender. If successful, you will pay back your loans for less than you owe.

You can write a formal cease and desist letter to the payday loan collector. This letter states that you no longer wish to be contacted about a debt. Make sure to type the letter and, if possible, send it by certified mail with a return receipt requested. That way, you have proof that the letter was received.

After you fail to make a few payments, your loan will be considered in default, which essentially means that you've failed to follow through on the terms of your loan agreement. Once you're in default, you can be contacted by debt collectors and even be asked to appear in court.

No, unpaid payday loans won't just go away. Defaulting on a payday loan will likely result in your debt getting sent to collections, which can stay on your credit report for up to seven years, and you could be sued until the statute of limitations for your unpaid debt ends.

Even if you have not revoked your authorization with the company, you can stop an automatic payment from being charged to your account by giving your bank a “stop payment order.” This instructs your bank to stop the company from taking payments from your account.

Lenders will report the delinquency to the credit bureaus, which means your credit score will take a hit. Lenders could also sell the debt to a collection agency that decides to sue you in court. You'll also have a harder time getting approved for future credit products with favorable terms.