Kimberly Chantal Parkes
Written by Kimberly Chantal Parkes

Kimberly Chantal Parkes is a former contributor to Rixloans. Kimberly Chantal is a freelance copy editor and writer with a specialization in personal financial planning. After having graduated from Kansas State University with a bachelor's degree in journalism, she began her career in media wearing many hats for community newspapers within the Kansas City area: writer as well as copy editor, photographer and coffee runner among other things.

Payday loans have become increasingly popular in recent years as a quick and easy way to access cash without needing a credit check. The loans have high-interest rates and fees that usually make it difficult for borrowers to repay on time. What happens if you don’t pay back your payday loan? The consequences are severe, ranging from damaged credit scores to legal action.

Borrowers face penalties such as late fees or increased interest rates when they fail to make timely payments on their payday loans. Borrowers who default on their loan risk the lender taking legal action against them by filing a lawsuit or turning over the debt to a collection agency.

There are emotional and psychological effects, such as stress and anxiety, besides the financial repercussions of not paying back a payday loan. Individuals exploring obtaining a payday loan must fully understand the potential consequences of not repaying it on time.

What Are Payday Loans?

Payday loans are short-term loans used by individuals who need quick cash to cover unexpected expenses or emergencies. Payday lenders offer small amounts of money (usually up to $500) with high-interest rates and fees, due on the borrower’s next payday. Payday loans seem like a helpful solution, but they quickly become a cycle of debt for people who struggle to pay them back on time. Borrowers must follow the below steps to obtain the best payday loans.

  1. Research payday loan providers in your area or online.
  2. Gather required documentation, such as a government-issued ID, proof of income, and bank account information.
  3. Complete the lender’s application, either online or in person.
  4. Review the loan agreement carefully, including the interest rate and fees.
  5. Sign the loan agreement if you agree to the terms.
  6. Receive the loan funds, either through direct deposit or a check.
  7. Repay the loan on the due date, typically your next payday.

There are options available such as refinancing options, if you are unable to repay your payday loan. They include credit counseling, debt relief programs, budgeting tips, or emergency funds. Borrowers must carefully review all options before obtaining a payday loan and have a plan in place for repayment to avoid potential consequences. Payday loan users spend approximately $520 in fees to borrow $375 according to Balancing Everything. The table below contains more data on payday loan facts.

Average fees paid to borrow $375$520
Payday loan usage odds for those earning <$40,000 annually62% higher
Likelihood of payday loan usage for ages 25 to 49Much higher
Maximum APR interest on $300 payday loan in the US664%
Average payday loan default rate6%, the same as the typical credit card default rate
Payday loan statistics

The Risks Of Taking Out A Payday Loan

Non-payment or late payments of a payday loan negatively impact the borrower’s credit score. Payday loan lenders impose late fees on borrowers who fail to make payments on time. Payday loan lenders usually undertake collection efforts to recoup any unpaid loan amounts.

Late Fees

Late Fees are a costly penalty for borrowers when they fail to repay payday loans on time. Such fees accumulate quickly, making it even more difficult for people struggling with debt to getting back on track.

Failing to pay a payday loan results in damage to your credit score. Lenders report late payments and defaulting on loans to credit bureaus, negatively impacting your ability to obtain future credit. You must carefully review the risks before obtaining a payday loan and have a feasible repayment plan.

Negative Credit Score Impact

Another significant risk of obtaining a payday loan is its negative impact on your credit score. Defaulting or making late payments severely damages your credit and makes it challenging to obtain future loans or rent an apartment. Failing to repay a payday loan results in debt collection efforts, further harming your credit score.

Seeking credit counseling before obtaining a payday loan is beneficial as it helps you to evaluate other options and prevent potential long-term financial consequences. You must review all the risks involved before deciding to borrow money.

Collection Efforts

Failing to repay the debt triggers debt collection efforts. Such efforts range from annoying phone calls and letters to legal action against you. Collection agencies are notorious for their aggressive tactics and stop at nothing to collect what you owe them. It seriously affects your credit score and makes it difficult to obtain future loans or credit cards.

Seeking help from debt consolidation services or credit counseling before reviewing a payday loan helps prevent such collection efforts and avoid potential long-term financial repercussions. You must weigh all options and understand the potential consequences before deciding to borrow money.

What Happens If You Don’t Pay Your Payday Loan?

Lenders take action to collect the debt, including adding extra fees and interest charges, reporting negative information to credit bureaus, and even filing a lawsuit against you if you default on your payday loan.

Borrowers must take steps to address unpaid payday loans, such as settlement options or negotiating new payment arrangements with lenders.

  • Budgeting tips help individuals avoid unexpected expenses in the future and prevent them from relying on payday loans again.
  • Debt consolidation and credit counseling services assist people struggling with multiple debts.
  • Seeking legal advice is necessary in more complex cases where creditors pursue aggressive collection tactics or engage in illegal practices.

Borrowers must explore all available options before defaulting on their payday loans to minimize any negative consequences and protect their financial stability.

The Consequences Of Nonpayment

The consequences of not paying a payday loan are dire, as the borrower faces various forms of punishment for defaulting on their payments. Failure to repay results in exorbitant interest rates accumulating over time, making it even harder to pay off the debt.

Debt collection attempts by lenders, or third-party collectors cause immense stress and anxiety, with constant calls and letters demanding payment. Late payment charges are another consequence that borrowers must contend with, adding more fees onto an already burdensome sum owed.

Nonpayment leads to damage to credit score, which make it challenging to secure loans in the future. Lenders take legal action against the borrower in extreme cases, leading to wage garnishment or asset seizure. Borrowers must read and understand the terms of any loan before agreeing to it and make timely repayment to avoid such consequences.

How To Avoid Payday Loan Debt

There are several measures to avoid falling into the trap of payday loan debt. One way is practicing financial literacy and budgeting basics to help manage your finances effectively. Credit counseling services offer guidance on developing a realistic repayment plan that works for you while avoiding fees associated with payday loans. Debt consolidation is an option if you have multiple debts, as it helps combine them into one manageable payment.

Read the contract before committing to any loan agreement, and in case of difficulty repaying, reach out to your lender for options such as a grace period or extension on the due date. Following such simple steps prevents you from getting caught up in the vicious cycle of payday loan debt, leading to financial stability and peace of mind.

Alternatives To Payday Loans

Credit counseling is a service offered by non-profit organizations that provide financial education and advice to individuals struggling with debt. Low-interest loans are available from financial institutions and cover expenses otherwise covered by payday loans.

Credit Counseling

Are you struggling to pay off your payday loan and worried about what happens if you don’t? Don’t worry. There are alternatives available that help you get out of debt. One such option is credit counseling, which offers credit repair and debt consolidation services. Credit counseling agencies work with creditors on behalf of the borrower to negotiate lower interest rates or payment plans that fit their budget.

It is a great alternative for people who want to avoid obtaining another high-interest loan but still need assistance managing their debts. Seeking help through credit counseling enables borrowers to take control of their financial situation and work towards becoming debt-free without taking extreme measures.

Low-Interest Loans

Another alternative for people struggling with payday loans is low-interest loans. Low-interest personal loans are available through many financial institutions, and people use them to consolidate debt or pay off existing payday loans. Such loans offer a more affordable option than cash advances and other high-interest loans associated with payday lending.

Various lenders offer installment plans with lower interest rates that allow borrowers to repay the loan over a longer period without being burdened by high monthly payments. Exploring such alternatives enables individuals to find a way out of their payday loan cycle while avoiding further financial stress.


Payday loans are short-term, high-interest loans repaid on the borrower’s next payday. They seem quick and easy to solve financial problems, but such loans have serious risks. The biggest danger of obtaining a payday loan is what happens if you can’t pay it back on time. There are serious consequences if you default on your loan, including damage to your credit score and even legal action taken against you by the lender.

You must understand the risks involved and take steps to protect yourself to avoid debt with payday loans. It includes seeking out alternative funding sources or working with a financial advisor to develop a realistic budget and repayment plan.

Overall, while payday loans offer fast cash in an emergency, you must only use them as a last resort. Understanding the potential consequences of non-payment and avoiding falling into debt in the first place enables borrowers to protect themselves from costly mistakes.

Kimberly Chantal Parkes

Kimberly Chantal Parkes is a former contributor to Rixloans. Kimberly Chantal is a freelance copy editor and writer with a specialization in personal financial planning. After having graduated from Kansas State University with a bachelor's degree in journalism, she began her career in media wearing many hats for community newspapers within the Kansas City area: writer as well as copy editor, photographer and coffee runner among other things.