How Many People In The UK Do Not Repay Payday Loans Each Year?

The default rate on payday loans in the UK hovers around 25-30%, highlighting the challenges borrowers encounter when attempting to meet repayments for this form of loan. Individuals relying on payday loans are often facing financial hardships that make timely repayment difficult, and the features of payday loans means that they can quickly become an expensive form of borrowing. 

This article will highlight the reasons why UK borrowers might end up defaulting on their payday loans, and what the consequences of this are. 

What Reasons Are There For Non-Repayment For Payday Loans?

Several factors contribute to the significant percentage of individuals who struggle to repay payday loans:

• High-Interest Rates – The high interest rates associated with payday loans can create a cycle of debt, making it difficult for borrowers to break free from constant loan repayment.
• Unrealistic Repayment Terms – The short repayment terms of payday loans, typically due on the borrower’s next payday, can be unrealistic for those facing ongoing financial challenges.
• Taking Out Multiple Loans – Some individuals end up taking out multiple payday loans to cover existing debts, exacerbating the difficulty of repaying the borrowed amounts.
• Unexpected Expenses – Unforeseen circumstances, such as medical emergencies or car repairs, can disrupt a borrower’s financial stability, making it challenging to allocate funds for loan repayment.

Many borrowers turn to payday loans during times of financial crisis, making it even more challenging to meet repayment deadlines when their economic situation does not improve. 

What Happens When You Fall Behind Repaying A Payday Loan?

When borrowers fall behind on repayments, payday loan lenders often initiate collection efforts to recover the outstanding amounts. These efforts may include phone calls, emails and other communication methods aimed at securing payment. 

Lenders frequently reach out to borrowers through various channels to facilitate negotiation (see our guide on your rights when your payday lender is demanding repayment). It is important not to ignore these attempts at communication. By continuing communication with your lender, it can potentially lead to more affordable repayment plans that better align your financial capabilities. Lenders may offer debt repayment plans, allowing borrowers to settle their obligations over an extended period with smaller, more manageable payments.

As borrowers become more aware of the potential consequences of non-repayment, such as damage to credit scores and legal actions, there is increased motivation to address the outstanding debt. As collection efforts intensify, there is a notable decrease in the default rate, dropping to approximately 15-20%.

What Are The Consequences of Not Repaying My Payday Loan?

The consequences of failing to repay a payday loan can be serious and long-lasting if not addressed. Borrowers may face a range of challenges, including:

• Fees and Charges – Non-repayment often leads to the accrual of additional fees and charges, increasing the overall amount owed. In the UK the maximum default charge is regulated at £15 by the Financial Conduct Authority.
• Legal Action – Persistent non-repayment may prompt lenders to take legal actions to recover the outstanding debt, potentially resulting in court judgements and additional financial strain.
• Damage to Your Credit Score – A serious consequence of non-repayment of payday loans is that it can negatively impact your credit score. A bad credit score affects your ability to access credit in the future.
• Falling Into A Debt Cycle – Defaulting on a payday loan can create a cycle of debt, making it challenging for individuals to break free from the financial challenges that led them to seek a payday loan in the first place.

Summary 

The high default rates on payday loans in the UK highlight the financial struggles faced by a significant portion of borrowers. While collection efforts from lenders can reduce some of the non-repayment issues, the root causes (including high-interest rates and repayment terms) that can impact vulnerable borrowers remain.