What Happens If I Stop Paying My Payday Loan?


Payday loans are a great way to get out of financial trouble if you use them wisely. You might need cash to pay for an urgent car repair or to purchase a ticket to visit a family member in need. You can borrow money from your next paycheck as long as you have a job. However, there are restrictions.

Payday loans are a last resort because of their prohibitive costs. The Consumer Finance Protection Bureau estimates that a typical payday loan of $15 per $100 borrowed is a two-week loan. This equates to almost 400% annual percentage rates (APR). While the cost may seem reasonable if you pay off your loan in two weeks, it can lead to financial problems if you wait. You will need to pay additional fees if you roll the debt over into the next two weeks. What happens if you default on your payday loan payments? You will quickly get into trouble.

How Payday Loans Can Impact Your Credit

Credit reports do not list payday loans. Payday lenders like (Oak Park) won’t conduct credit checks on applicants. Consequently, applying for one will not show up on your credit reports as a hard inquiry. They won’t notify credit reporting agencies if you do get one. These loans are not visible to the public so they won’t affect your credit score.

This is unless the account becomes insolvent. If the lender is unable to make payments, the lender could sell the account. Because most collectors provide information to credit reporting agencies, bad debts will likely show up on your credit report at that point. It will remain on your credit report for seven years and can negatively impact your credit score. Credit scoring is based on payment history. If an account goes into collection, it is a clear indicator that you have not paid your bill in accordance with the agreement. Your scores will fall as a result.

Payday lenders can help people who are unable to pay their debts by filing a lawsuit. A judgment will be filed if the lender wins. Oak Park Financial doesn’t list judgments but credit reporting agencies do. They will list it in your public record section. It will remain there for seven years after the date it was filed.

Options for Paying Your Payday Loans

Payday loans can be expensive and have severe consequences if you fall behind. Therefore, it is important to make these types debts a priority while your loan is in good standing. This could be a problem if you are financially struggling (which might be the reason why you got the loan in first place). Here are some ideas:

  • Get rid of unnecessary property. Go through your house and yard. Is there anything that is of no value? If it is possible to sell it you can use proceeds to repay the amount owed.
  • Get extra income. If you are looking to join the gig economy, babysit, or walk dogs, then you can drive for a car-sharing company. You should weigh your options.
  • Reduce your expenses. Examine your budget. Do your best to eliminate or reduce any debt.
  • Get a loan from a friend, family member, or acquaintance. Then, use the money to pay off the payday lender.
  • Ask about an Extended Payout Plan (EPP). Many states require that payday lenders offer EPPs. These plans give payday loan borrowers additional time to repay the loan, without any penalty. Lenders who belong to the Community Financial Services Association of America will offer EPPs to payday loan borrowers who have trouble paying their loans. Other lenders don’t. Seek out if your lender offers this option.

What to Do if Your Payday Loan Goes Into Collections

There is another possibility if all else fails. The payday loan delinquent gets sent to collections. You may be willing to compromise and pay a portion of the debt.

Third-party collectors are able to purchase debts at discounted prices and then attempt to collect the entire amount due. But, if you are able to reach an agreement between the collector and you, where they still make profits and you pay less, both of you win. This option comes with a drawback. The collector will see the account as “settled” on your credit report. This is not as appealing as “paid full,” so you have to weigh the financial benefit against any credit report imperfections. However, regardless of how you handle a collection account it will remain on credit for seven more years.

It is also a smart decision to visit a nonprofit credit counselling agency. These organizations provide free advice to the public. They can help with creating a budget that can manage your liabilities. The agency may allow you to use their debt management plans if you have enough money to cover your basic expenses. This program allows you to send one payment directly to the agency. The agency then distributes the funds to your creditors.

If your payday lender sued you for nonpayment, The likelihood is that the amount owed will rise and will incur additional court and attorney fees. Be prepared for sticker shock. You can choose to pay the entire amount or make monthly payments. Sometimes, the judgment creditor (the payday lender who sued) can garnish your wages with a wage garnishment. But you may be eligible to change the amount by filing an exemption.

If you are worried about not being able to repay a payday loan on a timely basis, this is a sign you should reconsider borrowing money from relatives or getting a personal loans. Payday loans can only be used in certain cases. You must be certain that you will pay off the loan with your next paycheck and that the repayment won’t make you short on future expenses. You don’t want that vicious cycle.


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