Payday loans have become a big part of the financial structure of the UK, with more and more people taking them out every year.
These short term loans seem simple; You fill in a form, the lender approves the request, and the money is put into your bank account within a short time. However, when you can’t afford to make the repayments, they aren’t so straighforward after all. So, what do you do if you can’t pay a payday loan?

Not paying payday loans

As a quick fix when money is tight, payday loans can be lifesaving. But what about when it comes to making the repayments? What if you struggle to keep up with the instalments? When it comes to not being able to afford to repay payday loans, this can lead to a financial nightmare for you. If you take a payday loan, you should pay a payday loan on time!

Often, the reason that people can’t afford to pay payday loans back is because of the increasing interest rates or fees piling onto their accounts. When payday loans aren’t paid back on time, it can lead to all sorts of problems for borrowers, including being hassled by debt collectors, which isn’t something that anyone wants.

Below, we explain what happens when you don’t pay a payday loan back and what the repercussions may be.

Usually, you pay payday loans back in monthly installments that the lender debits from your bank account on an agreed day. Say, for example, you have borrowed £2000, over the space of a year. Every month on an agreed date, usually the start or end of the month, the lender debits your installment amount from your bank account plus a certain amount of interest. The interest amount is usually between 10 and 20% of the loan amount.

What happens if you can’t keep up with your payday loan repayments?

Now, if there’s no money in the account or not enough money, then lenders can’t take the money owed. In this instance, they will then try again to claim the money a few days later. By law, they can only make two attempts to take payment from your bank account. Therefore, if the second attempt also fails they will start to look at other methods of getting the payment that’s required. Another option could be to rollover the amount for a month, so that next month you pay two instalments instead of one.

You can only do this once, due to changes in the law. Until a couple of years ago, you could roll loan repayments over again and again. Now, there is a limit on a number of times that you can rollover your loan.

If your loan has been guaranteed by someone or someone else has paid an installment of it – a friend or relative – then the company will try and recover the amount from them in the first instance. However, if this isn’t possible for one reason or another, they will then return to focusing on you again, as it’s your loan.

Whenever you miss a loan repayment, the lender will charge you a late payment fee. This is added onto the cost that you need to repay. Then for every day after that, the repayment isn’t made, more interest will accumulate on the loan amount. Obviously, each payday lender has different methods of dealing with late repayments but adding interest onto the amount owed is relatively common.

Does not paying a payday loan affect your credit?

It’s important to understand that every missed payment impacts your credit file in a negative way, reducing your credit score. This can mean that in the future you may struggle to get credit, such as a mortgage. So, ideally, you don’t want to miss payments as even one missed payment can have a big financial impact.

That’s what happens if you miss one payment and make it late. What happens if you miss more than one payment or can’t pay at all for a period of time? The best thing to do is contact your payday loan lender and explain the situation to them. Often, if you explain why you’ve defaulted on the payment, they are understanding about it. Often, the will be willing to arrange a payment plan for you to help make your repayments more affordable. For example, this could be a reduced payment plan spread over a longer period.

If you aren’t able to arrange a repayment plan or default on that as well, the chances are that a debt collection agency will be called in. The debt collection agency could be acting on behalf of the creditor, or they could have bought your debt from them, and are now recovering it for themselves. If your debt has been sold on, the company should inform you via letter.

How to pay off your payday loans

The law states that payday lenders have to offer borrowers debt advice if they are struggling to pay back money that they have borrowed, for example, if you cannot pay a payday loan. So there is help available if you are struggling. Using the help you can get, will make dealing with your financial problems a little easier.

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There are various debt help charities across the UK that can be contacted via phone or via the internet, so there is plenty of help available, it’s just a case of being willing to accept it. A lot of people are embarrassed to ask for help when they are in debt but they shouldn’t be, as getting help can make the process of dealing with the situation easier and less stressful.

Debt can cause serious levels of stress that can lead to mental health problems, which is why it’s so important to get help if you are in serious debt. Sometimes, it’s impossible to try and work out how to fix things, as your mind is so panicked by what is going on, which is why you may find working with a debt relief charity useful.

What happens if you stop paying your payday loans?

While there aren’t any legal repercussions in terms of criminal law for missing an online payday loan payment, there are repercussions. If you don’t make the payment at all, it goes to debt collectors. In a case where you still don’t make the payment, then the case may be sent to court. If they prove that you owe the payday lender money, a county court judgement could be passed against you.

A county court judgement will state that you must pay the money, or further action may be taken. This could mean more fees being added to the amount that you owe. It could also result in bailiffs enforced by the court visiting your home to remove your belongings as collateral. To be able to remove your belongings, a high court writ is taken out. This gives enforcement officers the right to come into your home and remove anything of value to pay a payday loan or other money that you owe creditors.

The other repercussion of this kind of situation is the fact that it will leave you with a bad credit score which will impact your ability to get credit in the future. Defaults and CCJs – aka county court judgements, stay on your credit file for six years. This means you will be affected for at least six years, possibly longer. This depends on how long it takes your credit score to go back up again.

So while there are no criminal repercussions of not paying back a loan, there are repercussions to be aware of. A county court judgment is serious, and it’s important to understand that.

Conclusion: What to do When You can’t Pay a Payday Loan

There you have it, everything that you need to know about what happens if you take out a payday UK loan and can’t afford the repayments. Although one missed payment won’t cause major financial issues for you if you pay it, missing multiple payments can lead to all sorts of problems. This is especially true if you don’t call the lender to let them know what’s going on. Often, if you talk to the lender and explain the situation, they can come to an agreement with you that will make repayments more flexible and affordable. The worst thing to do if you cannot pay a payday loan is hide from our lender. Not only can it lead to you ending up in court but it can also impact you for more than half a decade afterwards.

However, there is help available, so if you find yourself struggling to pay a payday loan, your best bet is to contact a debt relief charity. They can help you to deal with the situation in the best way possible. There is lots of support available; it’s just a case of being willing to get the help and advice that you need.

Tracy Walter
As a busy mother of 3, Tracy knows all about household finances. After completing her BA English Language and Literature at the University of Hertfordshire, she found an entry level job as an insurance agent and worked her way up. After the birth of her second child she left the insurance sector to work from home as a freelance writer. Tracy’s varied background in personal finance, writing and homemaking provide the perfect foundation for writing for the Payday Loan Net blog. Tracy loves nature, and weekends often find her with her kids at one of the many parks in the Barking area.

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