Can You Go To Court For Not Paying Back a Payday Loan?

No, it is very unlikely that you will end up in court over missing a payday loan repayment or failing to repay the loan.

Not being able to pay back a payday loan is not a criminal offence and since the loan amounts are usually just a few hundred pounds, it is not likely that a lender will be willing to cover the cost of lawyers and court time to take you to court.

Only in very rare cases if there is a very large debt outstanding or multiple payday loans might the lender feel inclined to try to summon you to court, but this does not happen very often in the UK payday loan industry.

Instead, numerous measures are taken out by the lender to try follow up on your repayment which include:

• Follow ups by email, phone and SMS
• Default fees and added interest
• Your credit score will fall
• The lender could send letters or bailiffs to your address
• Your debt could be sold to an agency who try to collect on behalf of the lender
• It will be tougher to get access to future loans and credit cards

What Happens If You Are Unable To Repay Your Payday Loan?

If your payment is due on a certain date, the lender will automatically use their system to collect the amount from your debit account. If the payment fails, there are a number of processes which take place one-by-one to try collect your debt and they escalate the longer your loan is in arrears:

1. Follow up email, SMS and call
2. Lenders will not charge any added interest or late fees for 24-48 hours to give you a chance to repay
3. If in arrears, the credit reference agencies will be alerted automatically causing your credit score to fall and the information will be known to future creditors
4. A default charge of a maximum £15 will be charged and daily interest of a maximum of 0.8% will accrue each day
5. The lender will continue to try collect from your account, usually once per day or every few days
6. Regular phone calls and letters will be sent out, requesting payment
7. Your debt could be sold to a debt collection agency
8. The lender could send a bailiff to try collect from your residence

Can You Go To Court For Missed Loan Repayments?

Is it very rare that you will go to court for missing a payday loan repayment or completely defaulting on your loan. 

It is not a criminal offence to fail to repay your loan and all the terms and implications are usually stated in the loan agreement that you and the lender sign before the loan is funded.

There are some loans that may result in court action, including:

• Larger loan sums (the debtor could take you to court)
• Failure to pay business loans or invoices (the debtor could take you to court)
• Failure to pay child support, criminal fines, parking tickets, injury compensation, utility bills, council tax or personal tax

Can You Go To Jail For Not Paying Back Loans?

No, very rarely will you face jail time for not paying back loans, unless it is for failing and refusing to pay child allowances, criminal loans and taxes.

What Should I Do If I am Struggling To Repay My Loan?

The best thing you can do if you are struggling financially and cannot repay your payday loan is to always speak to the lender as soon as possible and explain your situation. If you do not respond to any communication, it only requires the lender to aggressively step up the methods of collection.

Since in-store and online payday lenders are FCA regulated, they need to follow strict guidelines when someone cannot repay and this means offering forbearance and help where possible. In most cases, the loan provider will offer an “arrangement” which could involve offering smaller instalments over a longer period of time. If you cannot repay £200 this month, they could spread repayments over 4 months to £50 per month to make it more affordable. 

By being fully open and transparent with the lender, they may be able to waive default fees and added interest from accruing. 

Some other viable options include using products to help pay off debts such as debt consolidation and balance transfer cards (for credit cards).

A lot of customers that default on payday loans turn to debt management companies who arrange a systematic way to pay off all your debts by slowing paying off all your creditors one-by-one. This can be effective and the support of a debt company agency can take the heat away from the lenders, but this can mean sticking to a very strict budget for several years.

In addition, there are a number of free debt charities who can help you to arrange your finances, budget and work towards paying off all your debts, such as StepChange and The Citizen’s Advice Bureau.