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What happens if you cannot repay your payday loan?


Payday loan default can result in your bank account being drained and could lead to collection calls. Try to settle your debt as quickly and easily as possible.

A payday loan default can cause bank overdraft charges, collections calls, damage your credit scores and a day in Court. You may also be subject to garnishment of your pay.

Because you borrowed only $300, don’t believe it can’t happen.

Bruce McClary is spokesperson for National Foundation for Credit Counseling.

If you can’t repay a payday loan, you could settle the debt for less than you owe or file for bankruptcy if your debts are overwhelming. Here’s where you can check more loans options www.greendayonline.com

Bank withdrawals & collection calls

Payday loan lenders don’t waste any time when your money is due.

If they have access to your account under the loan agreement you signed, they will immediately withdraw the money. If the debits do not go through, they will likely break down the charge into smaller parts to try and extract money that is still in your account.

A bank fee could be assessed for each failed attempt. If you succeed, your bank could be emptied and other transactions bounced, which could lead to additional fees.

Lenders will begin calling, sending letters and making phone calls to those who were your references when you took out a loan. Federal law only allows lenders to request assistance in locating you. They cannot reveal your debt situation or tell where they are calling.

Is it jail time? No, but common threats exist

Failing to repay a loan isn’t a crime. It’s actually illegal for a lender threaten a borrower to arrest or jail. Unfortunately, payday lenders can use bad-check laws and file criminal complaints against borrowers. The judges will erroneously rubber stamp the complaints.

The Consumer Financial Protection Bureau advises anyone threatened with arrest for nonpayment to contact his or her state attorney general’s office. Even if you have been charged incorrectly, you must not ignore an invitation to appear in court.

Chance to negotiate

A lender would rather get money from you directly than sell your debts on to an outside collection agency. For a fraction of what you owe, third-party debt collectors could buy your debt for just pennies. You can offer half of what you owe as a starting point to settle the debt.

“Tell lender: “Look, I simply cannot pay you and consider bankruptcy,” John Ulzheimer says, a credit expert who previously worked at Equifax Credit Bureau and FICO Credit Scoring Company. “BK” is a way to get them serious. It means that they will get nothing if you start using it.

You must get all agreements in writing. The document should state that your debt will be paid off. You want the debt “exhausted”.

In the event that you fail to settle your debt, you need to be able to communicate with creditors and understand what is legal. For example, collection agents cannot continue calling you and making false statements or threats about your debt.

The court summons

Don’t believe the collection agencies don’t care about small amounts.

Michael Bovee is the president of Consumer Recovery Network which is a debt settlement firm. He says that most lawsuits against consumers are for relatively small amounts.

According to a Pew Charitable Trusts 2020 analysis of consumer behavior, lenders are more likely to win than the consumers. The judge then enters the default judgment and the court is authorized to begin collecting the money you owe the agency.

Bovee stated that property liens, bank account levies, and wage garnishment are all possible depending on where you live.

Lauren Saunders is the associate director of National Consumer Law Center. She says you should never ignore any lawsuit.

Saunders recommends that you appear in court to ask for proof that the money is owed.

There are alternatives if you’re unable to repay a payday lender

Saunders warns against prioritizing paying the payday lender over paying for food or rent.

Be sure to take care of your most basic needs first

  • You may be eligible for community assistance plans for help with rent, utilities or food.
  • Seek advice from a nonprofit credit counselor, bankruptcy attorney or legal aid center about your next moves.
  • Look for ways to find fast cash that don’t involve taking out more debt.

It’s not worth filing for bankruptcy over one small debt, but you may want to consider it if your unsecured debts — including payday loans, credit cards and medical bills — total half or more of your income.

Don’t wait to see if the debt will magically disappear. “Time never makes debt go away,” Ulzheimer says. “Bankruptcy does.”