What Happens if I Don't Pay a Payday Loan?

Payday loans can be a short-term solution to cash flow problems, but quickly become a headache if you do not or cannot repay them. Though payday lenders often will work with you to settle your account, they have a number of collection methods to deploy if you refuse to repay the balance.

Automatic Withdrawals

As part of your payday loan agreement, you likely agreed to automatic withdrawals directly from your bank account. Payday lenders typically set up withdrawals to occur early in the morning on the day you get paid. If your payday lender attempts an automatic withdrawal but you do not have enough funds available to cover the payment, it likely will try this approach several more times. This may increase your balance owed to the lender.


Check your payday loan agreement for the maximum number of times your lender may attempt to withdraw automatic payments. Note that both the lender and your bank may charge an insufficient funds fee for each failed withdrawal attempt.

Collection Efforts

If your payday lender is unable to automatically obtain payment, it may begin collection efforts. These efforts usually include a combination of letters and phone calls, and you may receive several phone calls each day. The Fair Debt Collection Practices Act places limits on the hours during which the lender may contact you, but does not explicitly limit the number of times a lender may attempt to reach you if you do not answer. Similarly, the lender may send you a number of letters, including registered letters, in an attempt to collect payment.

Collection Agency

If the lender is unable to collect payment for an extended period of time, it likely will sell your debt to a collection agency. The agency will renew efforts to reach you, both by phone and by mail, and may be more aggressive than the lender. Collection agencies are bound by the same Fair Debt Collection Practices Act regulations as the lender.

Payment Options

If either the lender or the collection agency is able to reach you, they will likely offer a number of payment options. Payday lenders may be willing to work with you to reduce payments or extend the term of your loan, and some collection agencies may reduce the principal balance in exchange for a payment commitment. You typically can remit payment to the lender or an agency via automatic withdrawal, check, money order or cash. Some lenders and agencies also accept credit card payments.


If you choose to repay your payday loan with a check, be sure you have sufficient funds to cover the check amount. If you knowingly write a check that your bank will not honor, you could be subject to criminal prosecution.

Credit Effects

Most payday lenders report your payment activity to major credit bureaus. If you do not pay your payday loan, the report of missed payments can have a significant impact on your credit score. If you default on the loan, the effect on your credit score likewise will be severe.