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What Happens When You Can’t Repay a Payday Loan?

Repay a payday loan.

Financial emergencies are common, and once you find yourself in a place where you can’t meet your daily financial needs, you might opt to take out a loan. A payday loan is one of the popular loans readily available, especially if you have a bad credit score or no credit record. However, there can be consequences if you don’t repay a payday loan. 

Payday loans can be enticing but overwhelming to use due to their high annual percentage rates (APRs), which are mainly in triple digits. As a result, many borrowers fail to stay on top of their repayments.

Consequences of Not Repaying a Payday Loan

What happens if, after using up your loan, you don’t have the funds to settle it? What’s next? What will happen to you?

1. Bank Withdrawals and Collection Calls

Failure to repay your payday loan can trigger bank withdrawals and collection calls.

Usually, payday loan lenders are very timely when it comes to the loan due date. If you had permitted them to withdraw funds from your bank account as part of your payday loan agreement form, they will go ahead and make the withdrawal.

If you don’t have enough money in your bank account to fully repay the payday loan, the lender will break the outstanding amount into smaller bits and try to withdraw whatever is available in your account.

With each failed withdrawal attempt by the lender, you’ll incur a bank fee against you. On the other hand, a successful withdrawal will drain your bank account. The latter can lead to the failure of other transactions you were conducting, resulting in additional fees.

If all the attempts to withdraw from your bank account fail, the lender will start calling you and sending letters from their lawyers. Payday loans go to the extent of calling your friends and relatives you included as references in your loan application form to help trace you. 

However, due to federal law restrictions, the lenders can’t reveal where they are calling from or explain your debt situation to anyone unless summoned to do so.

When it comes to debt collection calls, the loan collectors need to equip themselves with tips on overcoming objections in debt collection to help address the debt issue from a personal point of view. They shouldn’t be too harsh or issue intimidating threats. They should be ready to listen to you.

2. Jail Time? No – But Threats Are Common

Don’t worry; it’s unlikely that you’ll go to jail for failing to repay a payday loan, but you can be summoned to court.

Typically, failing to repay your payday loan on payday is not a criminal offense. And although most payday loan lenders are fond of threatening borrowers with a jail term or arrest, doing so is illegal.

In fact, the Consumer Financial Protection Bureau advises any borrower threatened with jail time or arrest for failure to repay their payday loan to contact their state attorney general’s office or file a complaint through Consumer Financial Protection Bureau.

The bureau also advises borrowers never to ignore an order to appear in court even if the complaint was filed unlawfully. Failure to appear in court is a criminal offense that can lead to arrest and a jail term sentence.

In some cases, lenders have succeeded in filling complaints against their borrowers.

3. A Chance to Negotiate

In most cases, payday loan lenders opt to collect money directly from you rather than selling your debt to an outside debt collection agency. This is because debt collection agencies pay just a few dollars to buy your debt.  

So, if possible, try negotiating with your lender on your repayment terms. This works well for payday loans with flexible repayment options.

You can start by offering 50% of the money you owe the lender. You can even mention to the lender that you can’t repay your loan and you are considering bankruptcy. Bankruptcy means the lender will end up with nothing, and its mention may trigger them into listening to you and negotiating the loan terms.

In case of a successful negotiation, ensure the new terms are recorded in writing and stamped, or in a signed statement.

You can also try negotiating with your lender to allow you a rollover and, if possible, collect the loan on the next payday. Payday loan rollovers often come with some fees.

4. The Court Summons

Can loan collection agencies sue you for the small amount you owe them? Yes, loan collection agencies have the right to sue you even for the smallest amount of money you owe.

Lenders usually end up winning most of the cases presented in court. The main reason is that most loan defaulters typically don’t show up in court.

Missing out on a court summons leaves the judge with no option other than to enter into a default judgment where the court can begin to collect the money you owe on behalf of the lenders.

Depending on your state’s regulations, you may end up getting exposed to property liens, wage garnishment, and bank account levies.

So, you should never ignore a summon to attend a court hearing. Take your time, show up in court, follow the hearing and ask for evidence from the lenders showing that you owe them money. In this way, there’s a possibility of winning if your lender fails to produce sufficient proof of your debt.

Never take court summons lightly!

Other Options if You Can’t Pay a Payday Loan

There are several other options you can turn to if you cannot repay a payday loan<span style=”font-weight: 400;”>, and they include:

      • Look for help from the community assistance programs to help you pay rent, buy food and cater to different needs in your home. Doing this ensures your basic needs aren’t neglected for the sake of repaying a payday loan.
      • Seek advice from nonprofit credit counselors, bankruptcy attorneys or, any legal aid near you to advise you on your next move.
      • Look for more appropriate ways to find fast cash without taking more loans.

Should You File for Bankruptcy?

Even if your payday loan repayments push you to the corner, don’t be in a rush to file for bankruptcy. Filing for bankruptcy for just one debt isn’t always worth it. However, you may consider this option when your unsecured loans like payday loans and other personal loans total half or more than half of your income.

Don’t delay, and hope that your loans will automatically disappear.  Take action, either through increasing your income, working out a budget, or using the options above. Otherwise, the only way to go about your loans if you can’t repay them is by filing for bankruptcy through a court order.

Bottom Line

Generally, failing to repay your payday loan can hurt your credit score, which may make it hard for you to access other loans. This means you’ll have to work hard to build your credit score again. 

While taking out loans can sometimes be unavoidable, it’s important to never take more than you can repay. Always take factors such as the high APR into consideration first.

Featured Image: Megapixl

About the author: I am a writer and an editor with experience in publishing, research, and SEO strategies. I have an honors BSc in Social Work from the University of Benin, Nigeria.

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