You may be taken to court over unpaid payday loans, but you will certainly not go to jail.
When you take out a payday loan, you will sign an electronic agreement with the lender which confirms the amount you will be repaying and when.
Whilst the majority of people repay their loans on time, it is always possible for unforeseen circumstances to happen and you may not be able to repay as scheduled.
In this case, it is important to know what might happen if you cannot repay your loan on time or miss repayments.
Will I go to court over unpaid payday loans?
There is a very small chance that you will be taken to court over an unpaid payday loan – it is up to the lender to decide whether they want to take you to court.
You will be taken to court if you have multiple loans outstanding or the loan is for a large amount – and the lender has tried to get hold of you and offered repayment plans but no answer or conclusion has been made.
The reason for going to court is so they can formally try to recover what is owed to them face-to-face. Importantly, the lender can place a CCJ (county court judgement
) on your credit file and this means that your credit score will be negatively affected and it will restrict your chances of borrowing from elsewhere in the immediate future.
So what happens if you do not repay your payday loan?
In reality, if you miss a payment accidently or are just a few days late, the implications are very small. For most payday lenders in the UK, they will typically offer you forbearance and give you up to 48 hours before adding any late fees or reporting this to a credit reference agency.
This is because some people get paid later from work than expected or there can be banking issues which can delay repayment by a day or so.
However, if you miss repayments for longer than 48 hours and do not settle your debts, there will be implications and you can expect the following to occur:
The lender will contact you
The lender will always take the standard approach of contacting you to follow up on a missed repayment. This will usually start with an email and text message and sometimes a customer service agent may call you directly to follow up.
If there is no answer after a certain period of time, you may receive a letter from the lender requesting payment.
With strict regulation in place, responsible lenders must only contact you a certain number of times per day, week or month. This is designed to give breathing space to those who are struggling to repay and avoid any aggressive collection practices.
Daily interest or late fees will incur
If you fail to meet your scheduled repayment date, you may incur a late fee which will be a maximum of £15. This is only a one-off fee, but will be applicable for any late collections, so if your loan has a duration of 3 months and you miss 3 repayments, you can be charged £15 on each occasion.
This amount is the maximum that you can be charged, as per the price cap enforced by the FCA
In addition, you will continue to incur interest every day whilst the loan is outstanding. If you end up repaying 5 days later than expected, you will pay an extra 5 days’ worth of interest, which is capped at 0.8% per day, in line with FCA regulation.
It will negatively impact your credit score
Failing to repay on time will negatively impact your credit score and this information will be available for future loan and credit card providers to see when you apply for products.
Your credit score is updated in real-time and it acts as a warning to future creditors who may be reviewing a recent application for loans or credit.
If the lenders see a recent default, they will typically stay clear and not offer funding.
What should I do if I am struggling to repay?
If you are struggling to make an upcoming payday loan repayment or you have multiple payments overdue, the best thing to do is speak to your lender(s). By speaking to them directly, they can typically offer some kind of flexibility or arrangement to help you.
By avoiding the lender, you are opening yourself to more phone calls, legal letters and court action – and this can often be avoiding by speaking to the lender and explaining your situation.
You can also seek free professional advice from the likes of Citizens Advice Bureau to discuss your options.
If you are still in the early stages and thinking about borrowing, you can read our guide on what to consider before applying for a payday loan
How is Fund Ourselves different?
At Fund Ourselves, if a customer experiences financial difficulty, we are able to extend their loan for up to 12 months without charging any late fees or interest. The customer will simply need to repay the original amount that was agreed.
We are very unique in this sense and there are no other lenders that offer such flexibility. Our passion is to help customers to borrow short term loans
to improve their financial situation – and complete the loan agreement in a better position, not a worse one.