Skip to main content

People that take out payday loans are likely short on cash, or in need of emergency funds to cover present costs. As a result, some people who borrow payday loans have trouble repaying the loan they have withdrawn. If you have found yourself in a similar situation, then it may be tempting to simply stop repaying the loan. However, although it is possible to stop paying a payday loan, you should only do this if you cannot afford to repay it as, by simply refusing to pay back the loan, you will line both yourself and your financial history up for very damaging consequences.

Payday lenders can be relentless and difficult to escape – it is likely they will take the money from you regardless if they have access to your account or will seek government help in locating you in an effort to acquire the money. However, if it is the case that you find yourself halting your repayment as you can no longer afford them, and are worried about the repercussions do not rush to conclusions – you may be able to avoid damaging consequences if you are quick to address the issue.

Keep reading to find out more about payday loans, and their repayment terms, and what may happen if you do not repay the money borrowed.

What Steps Should I Take If I Cannot Afford My Payday Loan?

If you find that you are unable to pay back your payday loan, the first and most important step you should take is to let your lender know. Your lender should then be able to help you to an extent by suspending recovery of the debt for a reasonable period – if you have developed a solid repayment plan. Hopefully, your lender should proceed to treat you fairly and with consideration instead of bombarding you with phone calls, emails or texts.

However, if you do not let your lender know, you will face the added pressure and pressure they may lay on you in an effort to retrieve their loan.

What Happens If I Stop Paying and Do Not Inform My Lender?

If you stop paying your payday loan and do not inform your lender, there may be more stressful and damaging consequences as a result. Your lender will begin by getting in touch with you and will then issue you a written ‘default notice’, giving you the opportunity to arrange how you may catch up with missed payments. When the loan has been ‘defaulted’, more interest and charges could be added. A payday loan default can lead to bank overdraft fees, collection calls, damage to your credit score and, in extreme cases, a day in court.

Payday lenders can be ruthless when the money you owe is due. If you have given them access to your bank as part of the loan agreement, lenders will simply withdraw the money from your account. Whilst each failed attempt can trigger a bank fee against you, successful attempts could drain your bank account.

At the same time, lenders will start calling, sending letters from lawyers and contacting those you put down as references when you withdrew the loan. By federal law, lenders can only ask for help in locating you. Nonetheless, these are unattractive prospects and should be avoided where possible. You must therefore always ensure you let your lender know straight away.

Once your lender is aware of your situation, there are some steps either they will take to ensure they get the money they are owed if you stop paying them, but also some that you can take if you feel you cannot repay your loan straight up.

What Are My Options If I Cannot Repay My Loan?

If your creditor thinks that you have the money to pay them and are holding it back, or are due to be paid some money which would cover the debt, they can apply for a third party debt order. A third party debt order allows your creditor to take the money you owe them directly from whomever has the money. Usually it is your bank that is holding your money for you.

However, if you are due to get a lump sum such as a redundancy settlement, an inheritance or insurance policy payout, your creditor could get your employer, solicitor or insurance company to pay the money to them instead of you. They can only take enough money to clear the debt.

However, a lender would rather collect money directly from you than sell your debt to an outside collection agency. Third-party debt collectors may pay just a few pennies on the dollar to buy your debt. Because of this, you should try to negotiate with your lender instead if you can.

For example, you could start by offering 50% of what you owe to settle the debt. Other options include seeing if you are eligible for community assistance plans to help stop you from sinking into debt and therefore helping you to repay your loan, or seeking advice from a non-profit credit counsellor, bankruptcy attorney or legal aid centre about your next moves. It may also be a good idea to look for some ways to acquire fast cash that doesn’t involve taking out more debt – perhaps try borrowing from a family or friend or seeing if you are eligible for a home equity loan.

Truly, the best and most responsible decision would be to not take out a payday loan if you are not absolutely certain that you can repay it. If you simply stop paying a payday loan, you may end up having to endure damaging side effects as a result, as your lender will generally ensure you always pay it back. You will only increase the interest and extra fees you will need to pay back in the long run, not only maximise the risk of damaging your credit score and banking history – risks far too great to warrant taking out a payday loan to cover your costs.