If you are unable to repay a payday loan, you can be sued and taken to court. However, this is only used as a last resort if the borrower fails to communicate with the lender.
It should be noted that a payday loan is designed to be used as a short-term fix for unexpected one-off payments. These loans should be used to bridge the gap between one paycheck and the next, so you should only ever be borrowing from payday lenders for a short period of time.
Can I be Sued By a Payday Lender?
In short, yes. Payday lenders can take you to court if you miss repayments to the lender. If the lenders win the court case, you will be required to repay the amount that the court states.
Lenders will often work with you to attempt to secure the money they are owed in a way that best suits both parties, however, if no resolution can be found, they can take you to court. Taking a client to court would be the lender’s last resort, as it is costly and not always beneficial for the lender.
There are a number of potential consequences for not repaying a loan: your credit score could be negatively impacted, making it more difficult to borrow money in future; your wages could be garnished; and debt collectors could be sent to seize some of your assets. Despite this, it is incredibly unlikely that you would go to prison for not repaying a loan.
What If I Can’t Repay My Loan?
If you find yourself in a situation where you have outstanding debt to a payday lender, but need to pay for essentials such as rent or food, these must come first. This will likely be an incredibly stressful situation, so it is advisable to consult a nonprofit credit counsellor, legal aid centre, or bankruptcy attorney for advice about where to go from here. You could claim bankruptcy if you are unable to repay your loans, but this should be discussed with a professional as it is only appropriate in certain situations.
As soon as you realise you may struggle to repay a loan, you should get in touch with your lender. You may be able to work out a repayment schedule that works for both parties, as the lender will always try to make it possible for you to repay a loan rather than take you to court.
What Will Happen If I Don’t Repay My Loan?
During the time in which you are not repaying your loan, it will still accrue interest. Failure to repay your payday loan can trigger wage garnishment, lawsuits, collection calls and can drain your bank account. The lender will continue to seek your unpaid loan amount after the agreed upon loan period has ended.
The payday loan lender will likely set up automatic withdrawals from your bank account, in an attempt to secure as much of their loan as possible. As such, this can result in added bank fees for you. If they are unable to do this, the lender may garnish your wages – withholding part of your paycheck to go directly to your payday lender in order to repay your loan.
What Happens If I Am Summoned To Court For Failure To Repay My Payday Loan?
Taking a client to court will always be the last resort of a payday lender. Due to the cost involved and not guaranteed success, lenders will try to arrange a sensible and fair repayment program that suits both parties. This could be in the form of a rollover – where your lender gives you more time to pay back your loan, with less late fees. However, if this is unfeasible, you stop cooperating, or you are unable or unwilling to pay, your payday loan lender may resort to taking you to court.
It is not just large cases that end up in court, many online payday lenders will be willing to go to court over relatively small sums of money. If you are not cooperating, or you cannot find a suitable repayment plan, don’t be too surprised if your lender does in fact take you to court over a relatively small loan.
The most important thing if a payday lender takes you to court is to show up – never ignore a lawsuit. Oftentimes, a lender will automatically win the case if their client does not show up to court.
Charlotte is an expert writer with over 10 years of experience in the financial space. Follow her posts for useful advice and interesting facts on key topics such as money, finance and payday loans.