What To Do If You Can’t Pay Back Your Payday Loan

What happens if I can’t pay a payday loan?

Payday loans are notorious for being very expensive and often come with very high-interest rates. This can make them challenging to pay back because the amount you are repaying is always higher than the amount borrowed. A survey has revealed that roughly 50% of borrowers who took out a payday loan last year could not repay it.

How do payday loans work?

The way these short-term loans work is that you borrow a certain amount, usually between £50 and £500, for a fixed period of time. Payday loans typically last less than 30 days as they are designed to be paid back when you receive your next paycheck. When it is time to repay, the lender will collect the funds directly from your bank account. If the money isn’t available, it can be very problematic. Most lenders will attempt to collect the money first thing in the morning on the agreed repayment date and will continue to try for as long as they need to until the amount has been recovered. Payday loans can be a quick and easy way to help you out financially until your next paycheck. They can be applied for in a matter of minutes, and funds can be in your account immediately, making them perfect for unexpected things you need to pay for.

Ready to search for your loan?

Get Your Quote

Do I need a guarantor for a payday loan?

Some payday loan lenders might ask for a guarantor when you apply for the loan, and if you provided one, they might attempt to take payment from them instead. This can be very stressful if you cannot repay and potentially put a friend or family member at risk.

What happens if I don’t repay my payday loan?

Payday loan lenders will immediately add late payment fees and additional interest when a loan isn’t repaid on time. This can make it even more difficult to pay off as the amount to repay will increase dramatically. If you are struggling to pay a payday loan, there are some things you can do to prevent debt from racking up.

What should I do if I can’t pay back my payday loan?

If you have a payday loan and don’t have the money to repay it, don’t panic. It can be stressful, but you can take a few steps to help control the situation and minimise the damage.

Get in touch with your lender

Contact your payday loan lender. All lenders have a legal responsibility to help their borrowers in times of financial crisis, and there are some things they can do to make the repayments more manageable. Your payday loan lender must provide you with information and direct you to places where you can get independent and free debt advice. They should also suspend the recovery of the loan amount if you are creating a repayment plan by yourself or with the help of a debt advisor. Your lender must treat you with respect and in a fair manner at all times, and they have a legal obligation to be reasonable when it comes to repayments. This could mean they will freeze your interest or suspend late payment charges.

Offer to pay what you can

Even if you can’t afford to repay the entire debt in one go, that doesn’t mean you shouldn’t pay anything. Your payday loan lender should accept smaller payments temporarily, so offer to pay whatever you reasonably can straight away. Most lenders will see this as an attempt to settle the debt and that you are serious about paying, and will be more likely to give you time to pay the full balance. If your lender agrees to a small payment upfront and a repayment plan for the balance, make sure you have records of this to protect yourself in the future.

Consider cancelling your recurring payment

Payday loan lenders will keep trying to take the repayment amount from your bank account. They will have a recurring payment set up to take the funds every day until they receive the total amount. This can be problematic if you have money in your account, but you need it for food, rent or bills. If the recurring payment will cause you further issues and leave you unable to pay for essentials, cancel the payment with your bank. You can call your bank and ask them to cancel the Continuous Payment Authority, or CPA, that the lender will have set up. If you decide to do this, make sure you let your payday loan lender know that the CPA is cancelled.

Think about rolling the loan over

Your loan provider might suggest rolling over your loan amount to the following month. Usually, this is not worth doing because it means you pay even more in the long run. You will have to pay further charges and additional interest and could put yourself in an even more difficult position in future. If you are confident you will have the funds to repay the entire loan amount plus all charges and interest next month, then rolling over might be worthwhile. If you aren’t sure you will have the funds next month, avoid this option and seek debt advice.

Speak with a debt advisor

There are many free, confidential debt advice services available to help you deal with your debt and payday loan lender. Your loan provider is legally obliged to provide you with details of free services, or you can look for one yourself. Debt advisors are on your side, and their job is to help you get your debt under control. A debt advisor can also speak with your loan provider on your behalf, so you don’t have to worry about them chasing you for payment.

Your questions, answered

The additional charges and interest on unpaid loans will vary between lenders. The majority of payday loan lenders will charge you late repayment fees, as well as interest for every day the loan remains unpaid. Late fees are capped at £15 due to Financial Conduct Authority regulations

Most payday loan lenders will attempt to take repayments for around 60 days. If they cannot obtain funds and no alternative repayment plan has been set up, they may turn to a third-party debt collection company. Debt collection agencies are often far more aggressive about obtaining the funds than your lender may be. They generally call and send letters regularly and may even turn up at your house asking for the debt to be settled. Eventually, if the debt is still unpaid, they could resort to repossessing your belongings. Before this happens, you must sort out your debt and work with your lender to avoid a debt collection agency getting involved.

When you make all your repayments on time, your credit score is not affected. However, if you fail to pay your payday loan, it will impact your credit rating. Usually, a payment has to be over 30 days late to be marked on your credit history, so if you can arrange payment or come to an agreement with your lender before this, your credit score will be unaffected. If your debt is passed to a debt collection agency, your credit score will see a dip.

If you fail to pay your payday loan and end up with it marked on your credit history, it can make securing finance in the future more difficult. Most lenders will not want to provide finance to a borrower who has previously defaulted on a loan. Some loans are designed specifically for those with bad credit, but they often have high-interest rates to make up for the risk to the lender.

It is technically possible to pay off a payday loan with another form of finance, such as a short-term loan or overdraft. You should think carefully about this decision as obtaining further finance could land you in a spiral of debt which is very difficult to get out of. You may also find it challenging to be approved for another loan if you already have an outstanding payday loan.

If you feel as though your payday loan provider has mistreated you, you may be able to complain. Lenders have a legal obligation to help you manage your debt and avoid further struggles, and if they are providing you with the appropriate help, you should submit a complaint. Send a complaint in writing explaining exactly how they have treated you and why you feel they have not upheld their responsibilities to you. They should respond promptly, and if you think their response is not satisfactory, you can escalate your complaint. The Financial Ombudsman Service is free to use and completely independent. They work to settle disputes between borrowers and lenders, so escalate your complaint to them.

When your credit score is damaged by failure to repay a payday loan, there are some things you can do. Building a good credit rating takes time, but it is worth the effort and can help you secure finance in future. Start by getting up-to-date with all your repayments and make sure you pay every bill on time each month. Your credit utilisation ratio is also important for your credit score, and this refers to the amount of credit you are using compared with how much you have available. Try to keep your credit utilisation below 30% by not using all of your limits. You can also regularly check your credit report online to make sure no mistakes or errors impact your score.

Here at The Money Shop, we are specialists in short term loans and financial services. If you need a short-term loan quickly, our broker partner’s panel of lenders can help. Whether you are looking for a payday loan to cover an unexpected cost or you need a short-term loan to help with your existing debt, they may be able to offer you some advice.

We don’t recommend using a short-term loan to pay off outstanding debts, but this can be an effective option in some cases. If you need a loan fast, we can offer you advice and guidance to help you find the most appropriate solution. Our dedicated team is trained to help you make the best decision for your unique financial situation. The Money Shop’s broker partner offers a range of different products and services when it comes to short-term loans. Many of their lender’s loans are available quickly and can be applied for with funds released in no time at all.