What Happens If You Cannot Repay Your Payday Loan?

If you cannot repay your payday loan on time, you may face additional fees, increased interest and a negative impact on your credit score. It is important to act quickly to manage the situation effectively and minimise the financial consequences.

Will You Be Charged A Default Fee For an Unpaid Payday Loan?

Yes, most payday lenders will charge a default fee if you miss a payment. This fee is capped at £15 by the Financial Conduct Authority (FCA) in the UK, but it can still add to your debt.

Default fees are applied to cover the lender’s costs of handling late payments, making it crucial to avoid missing deadlines whenever possible.

Will There Be Added Interest For Missing a Payday Loan Payment?

If you miss a repayment, interest will continue to accrue on the outstanding amount, capped at 0.8% per day. The FCA has capped the total cost of payday loans, meaning you will never pay more than double the amount you borrowed.

However, added interest can still make your debt grow quickly, especially if you do not address the issue promptly.

How Will Failing To Repay a Payday Loan Affect My Credit Score?

Missing a payday loan payment can negatively impact your credit score. Lenders report late or missed payments to credit reference agencies, which can lower your credit rating.

According to Experian, payment history accounts for up to 35% of your credit score, making timely repayments critical for maintaining good credit health.

Having a worse score can make it harder to be accepted for other mainstream credit products in the future or basic functions such as mobile phones, buying a car on finance or renting a property.

Should I Speak To The Lender?

Yes, contacting your lender as soon as you realise you cannot make a payment is essential. Many lenders are willing to work with borrowers facing financial difficulties. They may agree to freeze interest and stop additional fees from accruing, giving you breathing space to manage your situation.

Can I Arrange to Pay in Smaller Amounts Over A Longer Period?

Yes you can request an arrangement to pay, which allows you to repay the loan in smaller, more manageable amounts over an extended period. This arrangement can reduce the financial pressure and help you avoid further default fees. The lender must treat you fairly, as required by FCA regulations.

What If I Ignore The Payday Loan Repayments?

Ignoring your payday loan debt will not make it go away and can worsen the situation. Lenders may escalate the matter to debt collection agencies, which can be stressful and damaging to your credit score. Unresolved debt can also lead to legal action in severe cases.

How Can I Reduce the Impact on My Credit Score For Not Paying Back a Payday Loan?

To minimise the damage to your credit score, communicate with your lender early and agree on a repayment plan. Making consistent payments under an arrangement to pay will show creditors that you are taking responsibility for your debt. According to a report, individuals who engage with lenders early are 40% more likely to avoid severe credit score damage.

Are There Free Resources for Financial Help?

Yes, several organisations offer free debt advice, such as Citizens Advice, StepChange and National Debtline. These services can help you understand your options, negotiate with lenders and create a budget to manage your finances effectively.

What Legal Actions Could Be Taken Against Me For Not Paying Back a Payday Loan?

If you consistently fail to repay your payday loan, the lender might take legal action to recover the debt. This could result in a County Court Judgment (CCJ) against you, which can severely impact your credit score for up to six years.

In 2020, over 850,000 CCJs were issued in the UK, but because short term loans or payday loans are typically small amounts, they rarely are taken to court because of the court fees involved. But, it doesn’t mean that you won’t necessarily be taken to court, but having a CCJ means showing up in court and admitting that you haven’t paid a debt. A CCJ is on your file for 6 years and will be a warning sign to any other creditors looking to offer you loans, credit cards, mortgages or similar.

See all CCJ loans.

Can Interest For a Loan Be Frozen Permanently?

In some cases, if you demonstrate financial hardship, lenders may agree to freeze interest permanently as part of a repayment arrangement. This is more likely if you seek assistance from a debt charity that can negotiate on your behalf.

Summary

Failing to repay a payday loan can lead to additional costs, credit damage and legal issues. However, by taking proactive steps such as contacting your lender, seeking debt advice and arranging manageable repayments, you can regain control of your finances. Remember, there is always support available to help you through financial difficulties.