What Happens If You Don't Pay Back a Payday Loan?

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Key takeaways

Failing to repay a payday loan can result in additional fees, debt collection efforts, and potential legal action.
Delinquent payday loans can harm your credit score.
You can negotiate a debt settlement or payment plan with your lender. Or you may be able to roll the loan over for a fee.

Payday loans are helpful in a pinch. You often receive cash on the same day without a credit check or a lengthy application process. The problem is that these loans can be challenging to repay. If you don’t pay the loan on time, the consequences can be severe.

Defaulting on a payday loan may result in additional fees, collection attempts, lawsuits, or wage garnishments.

If you find yourself unable to pay, you have options. We’ll review potential scenarios and discuss the best approach to handle the situation.

Consequences of ignoring payday loan repayments

Payday loans can be a quick fix for immediate cash needs. But if you can’t repay them on time, it can cause trouble. Here’s what you might face if you default.

You’ll be charged fees

If you miss a payment, you can expect additional charges. The payday lender may charge a late fee for missed payments. Most lenders will attempt to withdraw the money directly from your bank account. Attempted withdrawals when you don’t have the money in your account may trigger bank fees.

If you do not have enough funds in your account, the bank will charge you an overdraft fee. If the lender is able to withdraw funds, they could empty your bank account. A low balance or empty account can cause the bank to decline other transactions and charge you with an insufficient funds fee. Many banks charge fees for each failed withdrawal attempt. Be aware of these bank fees, which can pile up quickly.

Debt collectors may call

When you can’t afford payday loan repayment, your lender may sell your debt to a collection agency. Debt collectors can be aggressive. Expect persistent calls and letters as they try to recover the money.

Lenders may sue you

If the debt collection agency’s efforts fail, they might take you to court. In court, lenders have to prove that you owe them money. The judge will dismiss the case if the plaintiff cannot provide loan documentation or a signed loan agreement, or if the loan is past the statute of limitations on debt.

Never ignore a lawsuit. If you do not show up, the judge will issue a default judgment on the lender’s behalf. A judgment can result in bank account levies, property liens, or wage garnishment.

Impact on credit score

Defaulting on any loan can harm your credit. If you’re asking, “why did my credit score drop?” it could be that your lender reported the missed payments.

Many payday loans are only reported to credit bureaus if you default and the loan is sold to a collection agency. If that happens, it will result in a negative mark on your credit report. The mark will stay on your report for up to seven years. It can affect your ability to get other types of credit or loans in the future.

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What to do if you cannot afford repayment

If you are unable to repay a payday loan, don’t panic. There are steps you can take to address the situation.

Stop electronic withdrawals

One of the first steps is to halt all electronic withdrawals from your bank account. If you remove the lender’s electronic access, they cannot try to collect payment and overdraw your account. Stopping electronic withdrawals will prevent insufficient funds or overdraft fees.

Negotiate with your payday lender

Lenders would rather collect money directly from you than sell your debt. They may be willing to accept a debt settlement – a lump-sum payment that is less than what you owe. Mention that you’re considering bankruptcy, and they will be more inclined to negotiate. With debt settlement, they’ll get something; with bankruptcy, they’ll get nothing.

Settling debt can save you money, but you will owe the IRS taxes on forgiven debts of over $600. Debt settlement can also harm your credit.

Another option is to request a payment plan. Many lenders are happy to work with you. It’s in their best interest to get paid, even over an extended period.

Be sure to get all agreements in writing.

Enroll in a debt management plan

A debt management plan (DMP) offered by a nonprofit credit counseling agency can help you get out of debt effectively and for less. Enroll your debts in a DMP, and the credit counselor will contact your lenders for a reduced payment plan. You pay the agency, which then distributes the money.

A debt management plan can simplify your payments and help you get back on track. You will have to pay a monthly fee for the service. And credit card companies may close your accounts.

If you want to avoid working with a credit counselor, you can consolidate payday loans yourself. Make sure that you can secure a debt consolidation loan with a lower interest rate and that you’ll save money.

Roll over the loan

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Some payday lenders will let you extend the repayment deadline or roll over the loan. You receive extra time to locate the money, but you will be required to pay a fee.

Say you borrow $200 for a $30 fee. Roll it over, and you’ll still owe $200, but now have a $60 fee, plus the lender may charge interest on the original amount. It gets expensive fast.

Rolling over a loan provides short-term relief but can easily trap you in debt. Many states do not let you roll over payday loans as a way of protecting consumers. Some require lenders to offer extended payment plans, which can help you repay the loan over a longer period. Check with your state and lender to see what options are available.

Find emergency cash

If you need quick cash, consider alternatives.

Personal loans
Payday alternative loans
Cash advance apps

Numerous online lenders offer personal loans to consumers with poor credit. These are often installment loans, which are easier to repay. Many of these lenders offer same-day or next-day approval.

Consider a payday alternative loan (PAL) from a federal credit union. These loans are for small amounts, up to $2,000, and their interest rates are capped at 28% APR (annual percentage rate). They are often much more affordable and designed for consumers with poor credit.

Cash advance apps or paycheck advances can help you cover costs for less. Most apps do not charge interest or conduct a credit check. The fees are minimal, and many, like the optional tip and fast funding fee, are avoidable.

Seek financial assistance

Look for local financial assistance programs or charities. You can find programs to help with rent, utilities, or food, which can free up money to repay loans. Call 211 to find assistance programs in your area.

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How to rebuild credit after defaulting on a payday loan

Defaulting on a payday loan can hurt your credit score. With some patience and discipline, you can fix your credit.

Bring all accounts current

The first step is to catch up on any overdue payments. If necessary, contact creditors to discuss payment plans. Paying off debt can prevent further damage to your credit score.

Pay your bills on time

Paying on time is one of the best things you can do to improve your credit score. Set up automatic payments. Put reminders in your calendar. Anything that will keep you from missing a payment. A positive payment history can significantly improve your score.

Lower your credit usage

Your credit utilization rate, which is how much of your credit limit you’re using, is the second most significant credit scoring factor. Aim to keep your usage below 30%. High credit card balances will harm your score.

Why does higher credit utilization decrease your credit score? It’s because you are relying too much on credit. Borrowing too much causes lenders to worry that you won’t be able to pay your bill. What you can do is pay as much as possible each month to lower the amount of credit you use.

A delinquent account dragging you down?

Find out what is a delinquent account

Keep old accounts open

Older accounts contribute to the average length of your credit history. Avoid closing old accounts, as they demonstrate your long-term credit behavior to lenders. Let them stay open to maintain a long credit history.

Limit new applications

Every time you apply for credit, the lender will conduct a hard inquiry, which can slightly lower your credit score. Submit multiple applications at once, and you’ll do more damage to your score.

New accounts also lower the average age of your credit history. Lenders prefer consumers to have longer histories, as it gives them more data to work with.

Monitor your score

Regularly check your credit score to see your progress. You can get your credit report once a year for free from annualcreditreport.com. Review your report from each bureau for errors and dispute any inaccuracies. Mistakes could be dragging your score down unfairly.

Frequently asked questions

1. What happens if I never pay a loan back?

If you never repay your loan, the lender may charge extra fees and even interest on it, adding to what you owe. They will likely sell it to a collection agency. You may also face debt collection lawsuits that can lead to wage garnishment or levies on your bank account. Your credit score will also suffer as almost all lenders report missed payments and defaults to the credit bureaus. The best thing you can do is find a way to repay the money.

2. Can lenders freeze your bank account?

Lenders can freeze your bank account if they obtain a court judgment against you. If you default and the lender successfully sues you, the court may issue a judgment allowing the lender to freeze your account or garnish your wages to recover the owed amount.

3. Can you go to jail for not paying back a payday loan?

You will not do jail time for failing to repay a loan. Debt is generally considered a civil matter, rather than a criminal one.

4. Do payday loans ever go away?

Payday loans do not disappear, but they are subject to a statute of limitations. After the statute of limitations has passed, lenders cannot legally sue you to collect the money. The exact timeline and rules vary by state. You still owe the money, and a default account will remain on your credit report for up to seven years, even if the statute has passed.

Bottom line

Payday loans can be challenging to repay. When you don’t have the funds to repay the loan, you may incur bank fees, pay extra to roll it over, or face a lawsuit. Payday loans can get expensive fast. To add insult to injury, your credit score will drop.

If you know you won’t be able to pay, contact your lender as soon as possible. Ask if they’ll settle the debt or if they can set up a payment plan. They may be especially willing to work with you if you threaten bankruptcy.

You always have options. And next time you’re short on cash, consider some less expensive ways to borrow, like cash advance apps or payday alternative loans. With a little effort, you can cover your expenses without going into debt.

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18. Baggage Insurance Plan coverage can be in effect for Covered Persons for eligible lost, damaged, or stolen Baggage during their travel on a Common Carrier Vehicle (e.g. plane, train, ship, or bus) when the Entire Fare for a ticket for the trip (one- way or round-trip) is charged to an Eligible Card. Coverage can be provided for up to $2,000 for checked Baggage and up to a combined maximum of $3,000 for checked and carry-on baggage, in excess of coverage provided by the Common Carrier. The coverage is also subject to a $3,000 aggregate limit per Covered Trip. For New York State residents, there is a $2,000 per bag/suitcase limit for each Covered Person with a $10,000 aggregate maximum for all Covered Persons per Covered Trip. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company.

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21. When an American Express® Card Member charges a Covered Purchase to an Eligible Card, Extended Warranty§ can provide up to one extra year added to the Original Manufacturer’s Warranty. Applies to warranties of five (5) years or less. Coverage is up to the actual amount charged to your Card for the item up to a maximum of $10,000; not to exceed $50,000 per Card Member account per calendar year. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company.

22. Purchase Protection is an embedded benefit of your Card Membership and requires no enrollment. It can help protect Covered Purchases made on your Eligible Card when they’re accidentally damaged, stolen, or lost, for up to 90 days from the Covered Purchase date. The coverage is limited to up to $10,000 per occurrence, up to $50,000 per Card Member account per calendar year. Coverage Limits Apply. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company.

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28. To apply for Credit Builder, you must have received a single qualifying direct deposit of $200 or more to your Chime Checking Account. The qualifying direct deposit must be from your employer, payroll provider, gig economy payer, or benefits payer by Automated Clearing House (ACH) deposit OR Original Credit Transaction (OCT). Bank ACH transfers, Pay Anyone transfers, verification or trial deposits from financial institutions, peer to peer transfers from services such as PayPal, Cash App, or Venmo, mobile check deposits, cash loads or deposits, one-time direct deposits, such as tax refunds and other similar transactions, and any deposit to which Chime deems to not be a qualifying direct deposit are not qualifying direct deposits.

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30. Based on a representative study conducted by Experian®, members who made their first purchase with Credit Builder between June 2020 and October 2020 observed an average FICO® Score 8 increase of 30 points after approximately 8 months. On-time payment history can have a positive impact on your credit score. Late payment may negatively impact your credit score.

31. On-time payment history may have a positive impact on your credit score. Late payment may negatively impact your credit score. Chime will report your activities to Transunion®, Experian®, and Equifax®. Impact on your credit may vary, as Credit scores are independently determined by credit bureaus based on a number of factors including the financial decisions you make with other financial services organizations.

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33. SpotMe® on Debit is an optional, no fee overdraft service attached to your Chime Checking Account. To qualify for the SpotMe on Debit service, you must receive $200 or more in qualifying direct deposits to your Chime Checking Account each month and have activated your Visa debit card. Qualifying members will be allowed to overdraw their Chime Checking Account for up to $20 on debit card purchases and cash withdrawals initially but may later be eligible for a higher limit of up to $200 or more based on Chime Account history, direct deposit frequency and amount, spending activity and other risk-based factors. The SpotMe on Debit limit will be displayed within the Chime mobile app and is subject to change at any time, at Chime’s sole discretion. Although Chime does not charge any overdraft fees for SpotMe on Debit, there may be out-of-network or third-party fees associated with ATM transactions. SpotMe on Debit will not cover any non-debit card transactions, including ACH transfers, Pay Anyone transfers, or Chime Checkbook transactions. SpotMe on Debit Terms and Conditions.

34. Tipping or not tipping has no impact on your eligibility for SpotMe®.

35. Out-of-network ATM withdrawal fees may apply except at MoneyPass ATMs in a 7-Eleven, or any Allpoint or Visa Plus Alliance ATM.

36. Save When I Get Paid automatically transfers 10% of your direct deposits of $500 or more from your Checking Account into your savings account.

37. Round Ups automatically round up debit card purchases to the nearest dollar and transfer the round up from your Chime Checking Account to your savings account.

38. Mobile Check Deposit eligibility is determined by Chime in its sole discretion and may be granted based on various factors including, but not limited to, a member’s direct deposit enrollment status.

39. Funds are automatically debited from your Checking Account and typically deposited into the recipient’s Checking Account within seconds. Pay Anyone transactions will be monitored and may be held, delayed or blocked if the transfer could result in fraud or another form of financial harm. Sometimes instant transfers can be delayed.

40. Pay Anyone transactions will be monitored and may be held, delayed or blocked if the transfer could result in fraud or another form of financial harm. Sometimes instant transfers can be delayed. Non-Chime members must use a valid debit card to claim funds.

41. MyPay is only offered in select states

42. To be eligible for MyPay, you must receive qualifying direct deposits to your Chime Checking Account as set forth in the MyPay Agreement. A qualifying direct deposit is a deposit from an employer, payroll provider, gig economy payer, government benefits payer, or other permitted source of income by Automated Clearing House (“ACH”) or Original Credit Transaction (“OCT”). Your MyPay Credit Limit and Maximum Available Advance may change at any time. MyPay is a line of credit and available limits are based on estimated income and risk-based criteria. Eligible members may be offered a $20 – $500 Credit Limit per pay period. Your Credit Limit and Maximum Available Advance will be displayed to you within the Chime app. MyPay is currently only available to eligible Chime members in certain states. Other restrictions may apply.

43. Not affiliated with Empower Annuity Insurance Company of America (www.empower.com). Not everyone will qualify. Offers range from $10-$300 for first-time customers; $10-$400 for all others. Offers are based on our eligibility requirements and can go up with on-time payments. In Feb 2025, the average offer was $95 for first-time customers; $187 for all others. Instant delivery is optional—see fees in Empower’s Terms. Empower offers a 14-day trial for first-time customers followed by an auto-recurring $8/month subscription fee. Cancel anytime.

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Rachel Alulis

Rachel Alulis has been the lead editor for Moneyfor's credit cards team since 2015 and for the financial rewards team since 2023. Before joining Moneyfor, Rachel worked at USA Today and the Des Moines Register. She then established a successful freelance writing and editing business specializing in personal finance. Rachel holds a bachelor's degree in journalism and an MBA.

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What Happens If You Don’t Pay Back a Payday Loan?

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