The answer is yes, you can be taken to court for not repaying a loan where the lender will ask the courts to force you to repay the loan. The impact of not paying a payday loan will be damaging to your credit score and it could result in a CCJ being issued.
Despite payday loans having a reputation for being a quick and easy solution, if you fail to repay your payday loan, you can find yourself getting letters and phone calls from the lender and debt collectors.
Payday lenders are regulated by the Financial Conduct Authority and have to go through a regulated procedure to recollect your debt. This means they can only contact you certain times per day and per week to recover their funds – but they cannot take you to court. This is also because payday loans are typically a few hundred pounds of debt, which may not be worth a company going to court over.
A survey conducted by Which? found out that around half of people with payday loans were unable to repay their debts, meanwhile a third were hassled by debt collectors in the last year. In this guide, we will be shedding light on what happens if you cannot pay for your payday loan.
How payday loans are meant to be repaid
Just for reference, this is how payday loans are meant to be repaid. Upon signing the payday loan agreement, you will agree to borrow a certain amount over a fixed period of time. This could be £200, in 14 days, for example.
It is not usually the case that you will actively repay the loan via cheque, rather the lender will look to automatically withdraw the repayment and agreed interest from your bank account on the agreed day of repayment. This is a process known as a Continuous Payment Authority (CPA).
All you have to be conscious of is having enough money in your account by the agreed date to be able to repay the loan, plus interest.
Can you be taken to court?
The simple answer is yes. Whilst payday lenders will work with customers to ensure that they offer realistic repayment options, if you simply stop paying or co-operating then the courts would be a final resort.
What if you have no money in your account to pay the loan?
It is usually the case that lenders will aim to take the money from your account from 5am onwards on the agree repayment date. However, if there is not enough money in the account, or nothing at all, the lenders will not give up on trying to collect the payment for as long as it takes to recover the amount that is owed.
Whilst lenders used to try ‘ping’ your account every few seconds or minutes, this has not been limited to just twice per day – simply because the FCA want to give people the choice of repaying, rather than having it collected for them. There is also a cost for lenders every time they try to collect.
As soon as it is discovered that you are having problems repaying your loan, you should talk to your payday lender and try and rearrange a plan with them as leaving it can make you look slightly dodgy to the loan provider.
If in the past anyone has repaid your loan on behalf of you, the lender will also try to take money from their account to settle the debt as a matter of protocol.
If you haven’t paid what was due to settle the debt or you have not got in contact to devise a repayment plan with your lender within a certain amount of time (this will typically be about 2 months), the lender will pass the case onto a debt collection agency.
From this point on, you can expect to receive letters, phone calls and even home visits where money will be demanded. If you do get to this stage, you need to work out how much you can afford to pay back and how often. This should be discussed with the debt collector to alert them that you will, in fact, be paying back the loan as and when.
How it will work will be, you will pay the debt collector who will then pass that money onto the payday lender.
Interest and charges on overdue money
If your repayment is late, you can expect an immediate late repayment fee of a maximum of £15. It does not stop there, the longer you leave it the more the loan will continue to attract interest, this is often set to 0.8% a day.
However, not all lenders have this approach and one of the main criticisms people have about the payday loan industry is that there seems to be a lack of transparency when it comes to late repayment penalties.
Beware that failing to repay a payday loan can result in you damaging your credit file, making it much harder to obtain finance in the future.