No, unpaid payday loans won’t just go away. Defaulting on a payday loan will likely result in your debt getting sent to collections, which can stay on your credit report for up to seven years, and you could be sued until the statute of limitations for your unpaid debt ends.
Here’s What Happens If a Payday Loan Goes Unpaid:
- Additional fees and interest: You’ll typically have to pay late fees and interest charges if you fail to make payments on your payday loan. You may even be charged a bank fee if the lender tries to withdraw money from your bank account and it doesn’t go through.
- Debt goes to collections: If your payday loan goes unpaid, the lender will typically send your debt to collections. Once your debt is in collections, you’ll start to receive calls, mail, and emails from a debt collector, and you may even face a lawsuit for the amount you owe.
- Credit score damage: Debt in collections gets reported to the major credit bureaus, so your credit score will take a hit if you default on your payday loan.
- Difficulty getting approved in the future: The negative marks on your credit report could make it difficult for you to get approved for a loan or line of credit in the future.
- Lender could take legal action: When you default on a payday loan, the lender has the right to sue you for the amount owed. If the lender sells your debt to a debt collection agency, they have the right to sue you instead.
The time period lenders and debt collectors have to sue you is known as a statute of limitations, and it varies depending on which state you live in. To be clear, you could still get sued after the statute runs out, but you will be able to prove your debt is “time-barred” and get the suit dismissed.
A payday loan is still a legally binding agreement, and you should abide by the terms of the loan to avoid any consequences. You should also think twice about getting a payday loan if you’ve yet to do so, as payday loans typically come with extremely high fees that could put you in a spiral of debt if you can’t pay the loan back quickly.
This answer was first published on 03/16/23. For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.
