What Happens If You Default on a Payday Loan

What Happens If You Default on a Payday Loan

Our life is tightly connected to our allowances. People tend to sometimes think about “can I consolidate payday loans“, run out of money and apply for a payday loan. Yet, reasons for borrowing vary, for example, an unexpected medical bill came earlier than expected, and you don’t have the needed amount until the next paycheck.

Payday loans may be a good alternative to help out in this situation, but they are too expensive at the same time. Defaulting on a payday loan leads to serious consequences, such as debt collection activity or higher fees and interest, etc.

Further in the article, we’ll cover all the main points, learn what happens if you default on a payday loan and how to deal with the attached problems.

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What Is a Payday Loan Default?

As known, a loan has to be paid regularly: monthly or yearly, etc. However, there are cases when consumers fail on payment – they forget to cover the required sum or simply don’t have money at that time. So, when the mortgage payment is missed, then defaulting on a payday loan happens.

Still, it usually takes a couple of failed deposits and not just one. Usually, when you’re late with the due date, you still have an opportunity to pay a little bit later, whether online or at the ATM.

To make sure all the requirements are satisfied, contact your bank or read carefully through Terms & Conditions. It will help you to get more acquainted with the question and avoid issues like defaulting on a payday loan in the future.

How a Default Happens

A payday loan doesn’t require credit checks, which is an absolute benefit. Yet, it needs access to your e-checking account or postdated checks. Once the due date has come, you must pay a certain amount.

You can pay at the bank point or online. In case you choose the second option, money will automatically be withdrawn from your bank account. If your account is empty, then the bank won’t cover the overdraft, and the creditor will continue trying to charge money.

Consider that every time the transaction gets declined, your bank will take extra fees for insufficient balance. It only worsens your relations with the bank, adding up debt on your funds as well as the relations with the creditor who’s still trying to get the money. If lenders can’t withdraw this money, they start reaching out to you by e-mail or call.

Read More: What Does It Mean to Default on a Loan?

What are the Consequences of Defaulting on My Payday Loan?

If you’re not answering lenders’ calls, they will try to contact you at work or get in touch with your relatives and friends to find you and remind you about the credit.

In the meantime, your banking score may increase because of extra fees, interest rates, and penalties you’ve received. In the worst case, you might deal with a collection agency, which is more aggressive than a regular creditor.

As an attached scenario, consumers may lose their property to a debt or their job. In some cases, you might not receive your monthly income or give a certain percentage to the loan collection agency.

So, if you don’t have an opportunity to pay off the monthly deposit or run a bit late, contact your credit representative and negotiate the situation.

Aggressive Collection Calls and Threats

As mentioned, when lenders can’t reach out to you, they will try all the other possible ways, such as sending you letters and e-mails and contacting your relatives or friends who you indicated as references.

However, according to federal law, all they can do is just demand information about your current location. On their side, they can’t reveal their place as well – only when asked or your debt situation is explained to a third party.

Take into account that creditors can also threaten consumers with criminal responsibility. Yet, it’s illegal, and nobody gets in jail for failing the payday loan payment.

In case you get into a situation with threatening, The Consumer Financial Protection Bureau advises you to contact the state attorney general’s office and manage the issue.

Court Summons

Most consumers think that it’s silly and almost impossible to get in court because of small nonpayment. However, plenty in recent years, financial issues have been connected to small amounts of defaults.

Usually, lenders win only because borrowers miss their orders to appear in court. On the other hand, if the consumer is in court, he or she has a great chance to negotiate.

Remember that you can never ignore the lawsuit – it’s a sign of complete failure. Anyway, the court can make several decisions. 

For instance, the judge can declare that you have to return money directly to the creditor, or you need to repay money to the court, who’s the mediator in this case, and it will transfer the sum to the lender.

Read Also: What Is the Debt to Income Ratio?

The Impact of Default on a Payday Loan on Your Credit

Needless to say, defaulting on a payday loan has a significant impact on consumers’ financial scores. It only worsens the divs and may be very dangerous for further debt activity. Also, it leaves a mark on your profile and may be an obstacle to finding a new job.

In addition, you will have to repay the credit with much higher fees and interest rates, money will be withdrawn from your account, and you may have a minus score. The credit history will be destroyed the most because the signs of the default remain for the long term. Let’s get into the consequences to see what’s coming and learn how to deal with it.

Increased Interest And Fees

Additional fees and interest are the lightest penalties because their amount depends on the chosen payday lender and the place of living. Some people run into nice creditors who wouldn’t like to get into the dirt, such as court sessions and collection agencies.

So, all they do is manage the situation with extra fees. These are usually charged when you’re unable to pay until the due date and refer to non-sufficient funds (NSF). 

However, even if this kind of penalty doesn’t look threatening, it’s better to be on time with monthly repay and avoid increasing fees because you’re just sinking deeper into debts.

Your Credit History Will Get Worse

The credit score is a pretty fragile thing – it gets impacted by a variety of factors. If you’re good with terms and repay the debt on time, then the score shouldn’t change. However, if you default on the payday loan and go through the third stage of the issue, which is dealing with the collection agency, then there is no way back.

Collectors will take a deep look at your credit history and mess up your credit score. Also, the mark on the credit report will remain for about 7 years, so anyone who’s going to check your history afterward will be able to see the previous default, or several, in case you have them.

Withdrawal of Money from Your Bank Account

After the first failed withdrawal, lenders will try again to get the money for the next 60 days. If you don’t cover the amount and have no funds in your account, they will probably apply to a third-party collection agency or sue you for payment delay.

Further, the collection agency will call you and send e-mails regularly until you repay the debt. Your family, friends, and co-workers might also get involved with collectors trying to find you. When you face them, you may find out that collection agencies are far more aggressive and persistent than original creditors.

Read More: How to Increase Your Credit Score 

What Can I Do If I Can’t Repay My Loan?

It’s highly important to be responsible for paying off the payday loan and avoid situations when you’re unable to cover the needed sum. Once you’ve missed the payment and neglected it, you’re going to sink into debt.

Yet, it’s not the end of the world, and the issue can be solved. Never stop trying to negotiate until you try all the possible solutions – you’re not hopeless. We’ve gathered some helpful information and want to provide you with several tips that will help you to deal with appearing default problems. Make sure to read them carefully and consider their importance.

Help From the Bank

Many consumers think that nothing will help them when they default on a loan, and that’s a frequent reason why they give up on trying to save their reputation and credit score. The first thing that everyone supposes to do after nonpayment or insufficient funds is to talk to the bank.

You need to set a meeting with your lender or a coordinator who has access to your application and other information.

Explain what happened, why you defaulted on the credit, and how quickly you can repay. Mostly, it helps creditors come up with different offers, such as postponing the due date, making you pay a smaller fee, or similar negotiations. Yet, you can find a reliable source on the bank website or by direct conversation with the lender.

Negotiating a Repayment Plan With Your Lender

Negotiating is an efficient way of getting out of the default situation. It’s considered one of the best options – lenders always want something, even if it’s not the whole needed amount.

So, there are several variants: you can set up for a lower sum but longer term (but only if it’s documentary possible), or pay less this month and pay more the next, etc. Everything that works for both sides is already a satisfactory consequence. 

However, always try to get these settlement agreements as a contract on paper with signatures and stamps. It comes in hand with a case when the lender tries to threaten you by calling, mailing, or suing for nonpayment at court.

Exploring Community Assistance Programs

Community assistance programs are convenient when you got in a situation of unexpected medical and housing expenses. All the states provide citizens with an opportunity to apply to the corresponding organization, charity, or nonprofit to ask for help to cover emergency expenses.

Therefore, you don’t need to take a payday loan when you can simply get some money from someone in need. Moreover, this option doesn’t require any additional payments or payments at all.

There are plenty of local and regional resources on the Internet. Just find the best one for you, select the state and your location, and you’ll see the list of compatible organizations.

Exploring Debt Consolidation Plans

It might sound tricky, but debt consolidation is a decent way to get out of the mortgage. Consolidation of the loan means combining several credits into one. Usually, consumers open up a new mortgage to cover the previous one with it. This option has a wide range of benefits:

  • you don’t have to keep track of all your debts because now they are all in one place;
  • the interest rates on the new loan may be lower, so it allows you to save up some money;
  • the consumer can apply for debt consolidation with a credit card, auto, personal and medical loans.

Read More: Best Debt Consolidation Loans

Borrowing Money from Friends And Family

Every time you think about applying for a payday loan, consider all the options that you have. Perhaps, it’s better to wait with the credit and find alternatives, such as borrowing money from family members or friends.

These people won’t cause you problems and won’t damage your credit score. This way, you’ll be able to negotiate and manage things eye-to-eye and repay when you feel financially free to do so. Also, when you borrow from acquaintances, there is no need to pay increasing fees or interest.

How To Repair Credit After A Payday Loan Delinquency?

As known, credit default significantly messes up the consumers’ credit scores. However, the condition of the credit can be rebuilt, and the inclemency of the situation can be reduced.

  • First of all, you need to keep an eye on the current payments. Always check your balances to make sure you’re not in debt. Also, look into your credit report more frequently. There is even an opportunity to subscribe to an automatic monthly report.
  • Second, maintain a habit of paying all the bills on time – this way, you’ll ensure your loan and other expenses. Lastly, take the credit utilization ratio into account. It is the amount of credit you’re using in comparison to the amount of credit available for you.

The ratio should be 30% at maximum. The lower, the better. Keeping your spending low will help you to rebuild decent credit and the reputation for further applying for payday loans.


A payday loan is a good option when you urgently need money. Yet, it’s pretty expensive because of the high fees and interest rates. Moreover, in case of payday loan default, you’ll get into big problems such as extra expenses, collectors’ threats, and calls, or even get a subpoena.

The severity of the situation depends on the chosen lender and your place of living. If you get lucky, the creditor won’t be too harsh and maybe will make concessions. Anyway, you should keep track of all your bank accounts to avoid default because it significantly damages your credit score.

Although it can be repaired, the signs of nonpayment will remain themselves for long 7 years. Consider alternatives before applying for the payday loan – they may be more beneficial in your situation.

To sum up, don’t forget to be responsible for payments, and there will be no need to live in a vicious circle dealing with constant insufficiency and aggressive collection agencies.

Sources Used in Research for the Article:

  1. What is a payday loan, Consumer Financial Protection Bureau,
  2. Definition of Default, Cornell Law School,
  3. Fixing Your Credit FAQs, Federal Trade Commission,


What happens if I close my bank account and default on a payday loan?

The payday lender might continue trying to withdraw the money. It always leads to increasing overdraft fees and interest rates, which will be attached to you even with a closed banking account. Also, the lender has a right to send your payday loan to a collection, which means even higher fees. 

When is nonpayment of a debt considered delinquent?

Although you still have 60 days to repay the debt on your loan, it will be considered delinquent when it is 30 days late. The number of days varies, which depends on the chosen lender. Delinquency also remains on consumers' credit reports. 

Can I pay off an overdue loan under the same terms?

This information should be discussed with your lender or the bank because it varies depending on the creditors' conditions and state's terms. But, perhaps, it won't be possible because in case of default, consumers are obliged to pay extra fees and higher interest rates.