What Happens If You Can’t Repay a Payday Loan

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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

when you can't repay a payday loan

You got laid off but still need to make rent. You’re short on your car payment and need a little extra help. Your electricity was shut off and you need to find a way to pay your overdue bill to turn it back on.

Sometimes, you need a little cash to get by. So you get a payday loan and make good on your bills. But what happens when you can’t repay a payday loan? Here’s what to do if you get caught in this borrowing pickle.

What is a payday loan?

A payday loan is a short-term loan that’s taken out for a small amount, typically $500 or less. Depending on state laws, you could obtain payday loans in person or online.

You take out a payday loan by writing a postdated check for the full balance, including the fees and interest that will add up by the time the loan is due. You could also authorize the lender to automatically debit the full balance from your bank account on the due date.

Payday lenders can charge hefty fees in exchange for the money you borrow. Mike Sullivan, a personal finance consultant for credit counseling agency Take Charge America, said APRs are roughly 400%. It can be difficult to stay current on your bills and your loan with such high interest.

“A $200 loan for 14 days might require a payment of $235, or $35 [in] interest,” Sullivan said. “Borrowers typically focus on the payment amount and don’t consider the total cost.”

What happens when you can’t repay a payday loan?

Americans spend $30 billion a year to borrow from payday and other small-dollar lenders, according to The Pew Charitable Trusts. So if you’ve taken out a payday loan and are having trouble paying it back, you’re not alone. Payday loans disproportionately affect underserved communities, where individuals might not have the resources to use traditional financial institutions, such as banks and credit unions.

“Payday loans are usually taken out by people with very poor credit who cannot find the cash for immediate needs, such as food, gas, or rent,” Sullivan said. “These borrowers do not often have other options for borrowing.”

When you take out a payday loan, many lenders don’t check credit or care about your financial situation. If you don’t have stellar credit, this might sound like a good thing. But it will only put you in deeper financial despair.

“Payday loans are a trap, and there isn’t much a borrower can do once trapped,” Sullivan said. “At some point, these loans often become unbearable, and the borrower defaults.”

Defaulting happens when you can’t pay back your loans on time. This can cause your credit score to plummet, your wages to be garnished, and future loans to have high interest rates. Your loan also could get turned over to a debt collector, who will work to get you to pay back your debt in full. Do your best to avoid defaulting on your payday loans.

What to do if you can’t pay back your payday loan

If you’re struggling to get out of the payday loan cycle, here’s how to pull yourself out.

1. Check your debt

Go over all your debt, from your payday loan to overdue bills. Focus on the ones that have the highest interest rates. With high rates, the longer you take to clear the debt, the more money you’ll end up paying.

2. Extend your repayment plan

Ask your lender for an extended payment plan, which is usually granted if your lender belongs to the Community Financial Services Association of America. You have to ask for an extension before the last day your loan is due, though.

You’ll also sign an amendment to your loan agreement. Read it over and make sure you understand the new terms and interest rates you’re agreeing to. You might be able to get a few extra weeks to repay your loan.

3. Consider a personal loan

Don’t be afraid of big banks, at least not when it comes to personal loans. Payday and personal loans might sound similar, but they’re not the same. Make sure you know the difference between personal and payday loans.

Taking out a personal loan can help you pay off your debt. These loans have much lower interest rates and longer repayment terms than payday loans. If you have poor credit, you’ll be happy to learn that you can even find personal loans for credit scores under 550.

4. Try a credit union

Credit unions and payday loan lenders have a lot in common. You usually can find one near you offering small installment loans that can help you make important payments. Many credit unions have payday alternative loans (PAL) for members.

While you have to be a credit union member for at least a month, you can get anywhere from $200 to $1,000 with terms from one to six months. The interest rate on a PAL is much less than the interest rate on a payday loan, up to 28%.

5. Get help

When you’re in a tough situation, it’s always a good idea to get help, whether it’s credit counseling or a cosigner for a loan. Asking for assistance is a big step in getting on the right track.

You can get help from the National Federation for Credit Counseling. Schedule an appointment with someone who can directly assess your financial situation.

If you’re trying to get a personal loan and your credit score isn’t great, you might want to find a cosigner. A cosigner can be helpful, but remember that the loan will impact both of you. You should both use caution when taking out a loan together.

If you have friends and family who can help you out in a pinch, use their resources. It’s much easier to pay back relatives than a payday loan lender.

Get your freedom back

You might consider a payday loan, but you don’t need it. When you can’t repay a payday loan, there are plenty of alternatives for you to consider. If you’ve already gotten one, take caution and know your rights. Explore ways to pay it back as soon as possible so you’re not trapped in debt.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal Loans: Fixed rates from 6.200% APR to 15.240% APR (with AutoPay). Variable rates from 6.145% APR to 14.685% APR (with AutoPay). SoFi rate ranges are current as of June 1, 2018, and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.145% APR assumes current 1-month LIBOR rate of 1.97% plus 4.175% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636.. (www.nmlsconsumeraccess.org)

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

  1. Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.73% – 29.99%$1,000 - $50,000
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5.90% – 15.24%1$5,000 - $100,000
Check rate nowon SLH's secure site
5.96% – 35.97%*$1,000 - $50,000Visit Upgrade
8.00% – 25.00%$5,000 - $35,000
Check rate nowon SLH's secure site
4.99% – 29.99%$10,000 - $35,000Visit FreedomPlus
5.99% – 18.99%*2$5,000 - $50,000Visit Citizens
15.49% – 34.49%$2,000 - $25,000Visit LendingPoint
5.99% – 35.89%$1,000 - $40,000Visit LendingClub
5.49% – 18.24%$5,000 - $75,000Visit Earnest
9.95% – 35.99%$2,000 - $35,000Visit Avant
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.