What Happens If You Can’t Repay a Payday Loan

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How Student Loan Hero Gets Paid

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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.

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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.

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How Student Loan Hero Gets Paid

Student Loan Hero is compensated by companies on this site and this compensation may impact how and where offers appear on this site (such as the order). Student Loan Hero does not include all lenders, savings products, or loan options available in the marketplace.

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Student Loan Hero is an advertising-supported comparison service. The site features products from our partners as well as institutions which are not advertising partners. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.

How Student Loan Hero Gets Paid

How Student Loan Hero Gets Paid

Student Loan Hero is compensated by companies on this site and this compensation may impact how and where offers appear on this site (such as the order). Student Loan Hero does not include all lenders, savings products, or loan options available in the marketplace.

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Student Loan Hero is an advertising-supported comparison service. The site features products from our partners as well as institutions which are not advertising partners. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.

RATES (APR)loan amount
5.99% – 18.85%1 $5,000 to $100,000
7.86% – 35.99% $1,000 to $50,000
5.94% – 35.97%* $1,000 to $50,000
99.00% – 199.00%2 $500 to $4,000
5.99% – 24.99%3 $5,000 to $40,000
7.99% – 29.99%4 $7,500 to $40,000
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1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Fixed rates from 5.99% APR to 18.85% APR (with AutoPay). SoFi rate ranges are current as of March 19, 2020 and are subject to change without notice. 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 creditworthiness, years of professional experience, income and other factors. See APR examples and terms. 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. To check the rates and terms you qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull.
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  4. If you lose your job through no fault of your own, you may apply for Unemployment Protection. SoFi will suspend your monthly SoFi loan payments and provide job placement assistance during your forbearance period. Interest will continue to accrue and will be added to your principal balance at the end of each forbearance period, to the extent permitted by applicable law. Benefits are offered in three month increments, and capped at 12 months, in aggregate, over the life of the loan. To be eligible for this assistance you must provide proof that you have applied for and are eligible for unemployment compensation, and you must actively work with our Career Advisory Group to look for new employment. If the loan is co-signed the unemployment protection applies where both the borrower and cosigner lose their job and meet conditions.
  5. 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)
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  1. To qualify, a borrower must (i) be a U.S. citizen or permanent resident; (ii) reside in a state where OppLoans operates; (iii) have direct deposit; (iv) meet income requirements; (v) be 18 years of age (19 in Alabama); and, (vi) meet verification standards.
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  1. The loan terms presented are not guaranteed and APRs presented are estimates only. To obtain a loan you must submit additional information and documentation and all loans are subject to credit review and our approval process. The range of APRs is 7.99% to 29.99% and your actual APR will depend upon factors including your credit score, usage and history, the requested loan amount, the stated loan purpose, and the term of the requested loan. To qualify for a 7.99% APR loan, a borrower will need excellent credit on a loan for an amount less than $12,000.00, and with a term equal to 24 months. Adding a co-borrower with sufficient income; using at least eighty-five percent (85%) of the loan proceeds to directly pay off qualifying existing debt; or showing proof of sufficient retirement savings, could help you also qualify for the lowest rate available. All loans are made by Cross River Bank and MetaBank®, N.A., Members FDIC.
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Personal loans made through Upgrade feature APRs of 5.94%-35.97%. All personal loans have a 2.9% to 8% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off a portion of existing debt directly. For example, if you receive a $10,000 loan with a 36-month term and a 17.98% APR (which includes a 14.32% yearly interest rate and a 5% one-time origination fee), you would receive $9,500 in your account and would have a required monthly payment of $343.33. Over the life of the loan, your payments would total $12,359.97. The APR on your loan may be higher or lower and your loan offers may not have multiple term lengths available. Actual rate depends on credit score, credit usage history, loan term, and other factors. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. There is no fee or penalty for repaying a loan early. Accept your loan offer and your funds will be sent to your bank or designated account within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes the transaction. From the time of approval, funds should be available within four (4) business days. Funds sent directly to pay off your creditors may take up to 2 weeks to clear, depending on the creditor. Personal loans issued by Upgrade’s lending partners. Information on Upgrade’s lending partners can be found at https://www.upgrade.com/lending-partners/.