What happens if a loan is not repaid when due?
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What happens if a loan is not repaid when due?

January 10, 2023
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What happens if a loan is not repaid when due?

Our lives are closely linked to our allowances. Sometimes people tend to run out of money and take out a payday loan. However, the reasons for borrowing are different: for example, an unexpected medical bill has arrived earlier than expected and you do not have the money available until the next payday.

What happens if a loan is not repaid?

Short-term loans can be a good solution to help you in this situation, but at the same time they are too expensive. Defaulting on a payday loan will result in serious consequences, such as credit recovery or increased fees and interest, etc.

Later in the article we will cover all the main points, find out what happens in case of default and how to deal with the resulting problems.

What is default on a payday loan?

As we know, a loan must be paid back regularly: monthly, annually, etc. However, sometimes consumers do not pay: they forget to pay the required amount or simply do not have the money at that time. Therefore, when the loan installment is not paid, a payday loan default occurs.

However, several missed deposits are usually required, not just one. Usually, when you are late on the due date, you always have the option of paying a little later, either online or at the ATM.

To make sure all conditions are met, contact your bank or read the terms and conditions carefully. This will help you familiarize yourself with the issue and avoid problems such as defaulting on a payday loan in the future.

How does a default occur?

A payday loan does not require a credit check, which is an absolute advantage. However, it does require access to the electronic checking account or postdated checks. Once the due date arrives, a certain amount must be paid.

You can pay at the bank counter or online. If you choose the second option, the money will be automatically withdrawn from your bank account. If your account is empty, the bank will not cover the overdraft and the creditor will continue to try to take money from you.

Consider that each time the transaction is declined, your bank charges an additional fee for insufficient balance. This only worsens the relationship with the bank, adding debt to your funds, as well as the relationship with the lender who is still trying to get the money. If the lenders cannot get the money, they start contacting you by e-mail or telephone.

What are the consequences of a missed loan payment?

If you do not return the lenders' calls, they will try to contact you at work or contact relatives and friends to track you down and remind you of the loan.

Meanwhile, your bank score may increase because of the additional fees, interest rates, and penalties you have received. At worst, you may have to deal with a collection agency, which is more aggressive than a regular creditor.

As a collateral scenario, consumers may lose their property because of a debt or their job. In some cases, you may not receive your monthly income or give a certain percentage to the collection agency.

So if you are unable to repay your monthly deposit or are a little behind, contact your credit representative and negotiate the situation.

Aggressive collection calls and threats

As we said, when lenders fail to contact you, they try everything they can, such as sending you letters and e-mails and contacting your relatives or friends whom you have listed as references.

However, according to federal law, all they can do is ask about your current situation. In turn, they cannot disclose their position-only upon request or when your debt situation is explained to a third party.

Keep in mind that creditors can also threaten consumers with criminal liability. However, this is illegal and no one goes to jail for not paying a payday loan.

If you find yourself in a dangerous situation, the Consumer Financial Protection Bureau advises you to contact the state attorney general's office and handle the problem.

Subpoena in court

Most consumers think it is silly and almost impossible to go to court over a small nonpayment. However, in recent years many financial problems have been related to small defaults.

Generally, lenders win only because borrowers do not comply with the court order. On the other hand, if the consumer goes to court, there is a good chance of negotiation.

Remember that you can never ignore the court case: it is a sign of total failure. In any case, the court can make several decisions.

For example, the court may say that you must return the money directly to the creditor, or that you must pay the money to the court, which is the mediator in this case, and which will transfer the money to the creditor.

The impact of defaulting on a payday loan on your credit

It is obvious that defaulting on a payday loan has a significant impact on a consumer's financial score. It only makes the numbers worse and can be very dangerous for further borrowing. It also leaves a mark on your profile and can be an obstacle to finding a new job.

In addition, you will have to repay the credit with much higher fees and interest rates, the money will be taken out of your account, and you risk having a negative credit score. It is your credit history that is most destroyed, as the signs of default persist over the long term. Let's get into the consequences to see what lies ahead and learn how to handle it.

Increased interest and fees

Additional fees and interest are the lightest penalties, as the amount depends on the lender you choose and where you live. Some people fall foul of sympathetic creditors who would not want to be in the mire, such as courts and collection agencies.

So they just handle the situation with additional charges. These are usually charged when you are unable to pay by the due date and relate to insufficient funds (NSF).

However, although this type of penalty does not seem threatening, it is better to meet the monthly due dates and avoid the additional charges, because you only risk aggravating the debt.

Your credit situation will deteriorate

The credit score is quite fragile-it is affected by a number of factors. If you meet the terms and conditions and pay off the debt on time, your score should not change. However, if you do not repay the loan and move on to the third stage of the problem, the one involving the collection agency, there is no turning back.

Collection agencies thoroughly examine your credit history and upset your credit score. Also, the mark on your credit report remains for about 7 years, so anyone checking your history later will be able to see your previous default, or several, if you have any.

Withdrawing money from your bank account

After the first failed withdrawal, lenders will try again to get the money for the next 60 days. If you do not cover the amount and have no funds in the account, they are likely to use a third-party collection agency or sue you for late payment. In addition, the collection agency will call and e-mail you regularly until you pay the debt. Your family, friends, and co-workers may also be involved in the debt collectors' efforts to find you. When you confront them, you may find that collection agencies are much more aggressive and persistent than the original creditors.

What can I do if I can't pay my loan?

It is very important to be responsible in repaying your payday loan and avoid situations where you are unable to cover the amount you need. Once you miss payments and neglect, you fall into debt.

However, it is not the end of the world and the problem can be solved. Never stop trying to negotiate until you have tried all possible solutions-you are not hopeless. We have gathered some useful information and would like to give you some tips to help you deal with nonpayment problems. Be sure to read them carefully and consider their importance.

Help from the bank

Many consumers think that nothing will help them if they default on a loan, and this is often why they give up trying to save their reputation and credit rating. The first thing to do after a missed payment or default is to talk to the bank.

You need to make an appointment with your lender or a coordinator who has access to your application and other information.

Explain what happened, why you did not repay the loan, and how soon you can repay it. In most cases this helps lenders make different offers, such as extending the due date, charging lower fees, or negotiating similarly. However, you can find a reliable source on the bank's website or by contacting the lender directly.

Negotiate a repayment plan with the lending institution.

Negotiation is an effective way to get out of default. It is considered one of the best options: lenders always want something, even if it is not the full amount requested.

So there are several variations: you can agree on a lower amount but a longer maturity (but only if it is documentally possible), or pay less this month and more the next, etc. Anything that satisfies both parties is already a satisfactory outcome.

Anything that satisfies both parties is already a satisfactory outcome. However, always try to get these settlement agreements in the form of a paper contract with signatures and stamps. This is useful when the creditor tries to threaten you by calling you, sending you a letter or suing you for nonpayment.

Explore community support programs

Community assistance programs are useful when you are faced with unexpected medical and housing expenses. All states offer citizens the opportunity to turn to the appropriate organization, charity or nonprofit for help with emergency expenses.

Therefore, there is no need to resort to a payday loan when you can simply get money from someone in need. In addition, this option does not require additional payments or deposits.

Many local and regional resources can be found on the Internet. Just find the one that is right for you, select the state and place where you live, and you will see a list of compatible organizations.

Explore debt consolidation plans

It may sound complicated, but debt consolidation is a good way to get out of a mortgage. Loan consolidation involves combining several loans into one. Usually, consumers open a new mortgage to cover the previous one with this one. This option has a wide range of advantages:

  • you no longer have to keep track of all your debts because they are now all in one place;
  • the interest rates on the new loan can be lower, saving you money;
  • the consumer can apply for debt consolidation with a credit card, car loan, personal loan, and health loan.

Borrowing money from friends and family

Whenever considering applying for a payday loan, it is good to consider all possible options. It may be better to wait with credit and find alternatives, such as borrowing money from family members or friends. These people will not cause you problems or damage your credit rating. This way you can negotiate and handle things with confidence and repay when you feel financially free. Also, when you borrow from acquaintances, you do not have to pay fees or increasing interest.

How do you re-establish credit after a bad payday loan?

As is well known, defaults significantly affect consumers' credit rating. However, the credit situation can be rebuilt and the severity of the situation can be reduced.

  • First of all, you need to keep an eye on your current payments. Always check your balances to make sure you are debt-free. Also, check your credit report more often. You can also subscribe to an automatic monthly report.
  • Secondly, get into the habit of paying all your bills on time-this will secure your loan and other expenses. Finally, consider the credit utilization ratio. This is the amount of credit used compared to the amount of credit available.
  • This ratio should be no higher than 30%. The lower the better. Keeping your expenses low will help you reestablish decent credit and the reputation you need to apply for other payday loans.


    A payday loan is a good option when you need money urgently. However, it is quite expensive because of the high fees and interest rates. In addition, if you fail to pay the loan, you will have big problems such as additional fees, threats and calls from debt collectors, or even a lawsuit.

    The severity of the situation depends on the lending institution you choose and where you live. If you are lucky, the creditor will not be too severe and may make concessions. In any case, you should keep track of all your bank accounts to avoid defaults, as this significantly damages your credit rating.

    Although it can be repaired, the signs of nonpayment will remain for 7 years. Before applying for a short-term loan, consider other alternatives, which may be more beneficial in your situation.

    In summary, remember to be responsible for your payments, and you will not have to live in a vicious cycle of continuous missed payments and aggressive collection agencies.

    Quinanna Patterson
    Written by
    Quinanna Patterson
    Loans, Mortgage, Insurance
    I am a top-of-the-class accountant with an undergraduate and two professional certifications [BCom, CMA(US), CA (Intermediate)]. I have expert-level knowledge and understanding of subjects like accounting (financial and management), finance, investment, and economics.