What happens if I can’t pay a payday loan?
Many things can affect your ability to make payments on a payday loan, from losing your source of income to other essential expenses eating up your budget. There are many people out there who discover they can’t pay payday loans and there is no shame in asking for support or guidance.
If you can’t make the planned payments on a payday loan then this guide can help when it comes to the next steps to take.
What could happen if I don’t pay my payday loan?
Many people immediately worry about bailiffs and court summons if they are unable to make a payment on a loan.
If you miss a payment, a lender will contact you by a combination of phone calls, emails or letters asking that you make your payment, or get in touch with them to discuss your situation.
It’s important to note that they are not allowed to call your place of work without permission or discuss your debt with anyone but you unless you authorise somebody else to speak on your behalf.
If you do not pay, your account will first be marked as in arrears, and you may receive some formal communication to this effect. Lenders have an obligation to accurately report information about your account with them to Credit Reference Agencies.
A communication, called a Notice of Sums in Arrears, may be sent to you as an email or through the post. If your account remains in arrears, then your lender may default your account, which will be reported to the Credit Reference Agencies. You should receive a letter called a Notice of Default when this happens, notifying you.
What to do if you can’t pay your payday loan
1. Get help – Seek free and impartial debt advice
It’s important you speak to a free and impartial, not-for-profit debt advice service as soon as you realise you will struggle to keep up with your payday loan payments. There are a range of free services out there to support you and help you get back on your feet financially.
We’ve provided a list of these in our Payday Loans Debt Help guide, click here to view this.
These debt agencies can talk through your finances on the phone, by email or over live chat, helping you work out where you can free up money to put towards your debt, how to prioritise your debts, and how to talk to creditors to get a plan in place that works for both of you.
Some debt advice services can also set up a Debt Management Plan (or DMP) for you, and will liaise with your lenders on your behalf. Beware, some debt advice agencies may charge a fee for this, however non-for profit agencies such as StepChange in particular offer this service for free.
You can also:
2. Notify the lender
It’s a good idea to speak to your lender as early as possible once you know you won’t be able to make a repayment on time. This means contacting their customer services team and notifying them that you are struggling with your repayments. They may be able to make suggestions or offer some form of help so you can get back on track – but this all depends on the lender.
At Sunny, we have a team of customer service representatives dedicated to assisting customers who fall behind on their payments. If a customer informs us they are experiencing financial difficulty we will immediately freeze their interest, and stop communications for 30 days to allow them time to organise their affairs and make a plan.
We have a number of alternative repayment options available to customers who fall behind to help them either get back on track, or repay their balance at a more affordable rate.
Your lender must treat you fairly and give you a reasonable amount of time to repay what you owe. They should also point you towards agencies where you can get free and impartial debt advice.
If you have already missed a payment, you may have incurred a late payment fee and could still be accruing interest on your loan, increasing your balance. Don’t panic. These fees and charges will be included in any repayment plan you set up with a lender to ensure everything is covered.
It’s worth noting that Sunny never charges late payment fees – or any fees at all, for that matter – on our short-term loans.
3. Consider refusing to roll over your payday loan
Rolling over a payday loan may seem like a tempting option in the moment when you’re unable to make your payment, but it could leave you in a worse situation further down the line.
It’s likely when you contact your payday loan provider that they’ll suggest doing this, but with the added interest, you will end up owing more than you originally anticipated.
Remember that since 2014, payday lenders are unable to roll your loan over more than twice if you do decide to go down this route – which does help to limit how much more you can end up paying.
All lenders must also adhere to an overall cost cap where you can never pay back more than the amount borrowed in fees and interest.
4. Consider cancelling the continuous payment authority
It’s important you prioritise your essential bills and money for food, rent or your mortgage and energy bills are the most important.
If you want to ensure the payment for your payday loan isn’t going to impact your ability to cover these essential costs you could look into cancelling your continuous payment authority so that the lender can’t take money from your account that you’d earmarked for other essentials.
Many lenders, including Sunny, do not work with direct debits or standing orders. Instead your repayment is set up via continuous payment authority or CPA.
This means the lender can use your debit card to collect money you owe, and doesn’t have to make a request to your bank as they would with a direct debit or standing order.
It also means that if a CPA payment is declined, you won’t incur a refused payment fee from your bank as you would with other means of payment.
If you wish to do this, you should notify the lender that you want to cancel CPA on your account, at least one day before your payment is due. It’s a good idea to also call your bank to let them know. Make a note of the time and date when you did this for future reference.
If the money is still taken after you’ve cancelled your payment and it was done in plenty of time, then you can dispute the payment with your bank and they must refund you by law.
5. Ask your creditor if they’ll freeze the interest and charges
If you are having financial difficulties, you can also ask the lender to freeze your charges and interest.
While they’re not required to do this, they should consider it. You may need to provide evidence of your financial situation to get them to agree to freeze anything but it’s worth the hassle if it means knowing where you stand and having a fixed balance to work out how to pay.
At Sunny, we automatically freeze interest on the accounts of customers who tell us they’re in financial difficulty, and cease communication for 30 days to allow them to get their affairs in order and make a decision about their next steps.
Once these things are done you can then follow the plan you and a free debt service have put together.
If you have a repayment plan in place that reflects your financial situation and means that you are still making progress towards clearing your balance, albeit over an extended period, then the lender should agree to this – especially if you have the backing of a debt advisory service.
Can I complain if I don’t think a lender is treating me fairly?
If you don’t believe a lender is not treating you fairly by handling your requests as they should or is not abiding by the guidelines set out by the FCA then yes, you can complain.
You should always raise your complaint directly with the lender first and ask that they come back to you as quickly as possible. The FCA rules say that a lender must acknowledge your complaint promptly, where possible attempt to resolve within 3 business days or provide you with a resolution within eight weeks where this isn’t possible.
If after this time you have not had a satisfactory response, then you can escalate your concerns to the Financial Ombudsman Service who is able to settle disputes between lenders and their customers.
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Looking for further information on lending options?
If you want to know more about short-term or payday loans, we offer a range of guides detailing what to consider and what is involved when you borrow cash for an emergency.