How Long Does a Payday Loan Stay in the System?

Payday lenders don’t check your credit when you apply for a loan, and they don’t report it to the credit bureaus when you repay it by the due date. 

But if you think an unpaid payday loan just disappears, think again. A payday loan default will stay in the payday lenders’ system for six years, and if it is handed over to debt collectors, it will be reported to the credit bureaus and will appear on your credit report for seven years.

READ MORE: What are payday loans?

Payday Lending Has Its Own System

Payday lenders generally don’t report defaults to the three credit bureaus, they’ve developed their own network (or “system”) that lets other payday lenders know that you didn’t repay a previous loan. This default will stay in the payday lenders’ system for six years.

READ MORE: How to get out of payday loan debt for good

Pro tip: Interest rates and fees are extremely high and can add up quickly. If you’re struggling to repay a payday loan, it’s best to seek out an alternative, like a cash advance app or Payday Alternative Loan, and use that money to pay off your payday lender. Both of these options will give you more flexibility to fix your financial situation.

READ MORE: Payday loan interest rates

Can You Get a New Payday Loan After Defaulting on a Previous One?

Probably not. If your information is added to the payday lenders’ network, your only remaining loan option could be a tribal lender. Tribal lenders are even more dangerous than payday lenders because they aren’t obligated to follow state or federal laws.

Pro tip: This means that even if you live in one of the 18 states where payday loans are illegal, tribal payday loans are still legal.

READ MORE: Can you have more than one payday loan?

What Happens If You Default On Your Payday Loans?

Payday loans are particularly difficult to repay. The loan term is extremely short. Because the money is due from your next paycheck, more than 80% of borrowers haven’t had enough time to recover financially before the loan repayment is due. That leads to loan rollovers, and sometimes even defaults. 

Because payday loans are usually for small amounts of money, borrowers assume that the ramifications of defaulting are less severe than if you’d skip paying a credit card bill or installment loan. That’s a false assumption. Payday lenders are very aggressive about getting their money back, even if the loan amount is very small. 

READ MORE: What happens if you default on a payday loan?

At first, the payday lender may send you email, a text message or a letter. After that, you’ll probably get a phone call or a voicemail. The payday lender may even try to contact your friends and family. 

If those attempts are unsuccessful, your payday loan agreement and personal details could be sold to a debt collection agency. At this point, the collection agency will likely report the unpaid debt to the credit bureaus, your credit score will fall and the black mark will stay on your credit report for seven years. 

Pro tip: The three major credit bureaus are Equifax, Experian and TransUnion.

A lender or debt collection agency could take you to court. Though failing to repay debt is a civil matter (so you won’t face criminal charges that could land you in jail) you will have to appear at a court hearing, and you could face wage garnishment. If you skip a court appearance or fail to follow a judge’s orders, you could then end up in jail. 

Payday Loan Defaults: What Happens If You Close Your Bank Account?

When you apply for a payday loan, you must give authorization to the payday lender to debit the loan payments from your bank account on your next payday, or provide a post-dated check that’s cashed on the loan’s due date. 

Pro tip: Payday loans are also sometimes called payday advance loans.

If the lender’s withdrawal efforts fail, the lender may keep trying to withdraw smaller increments from your account, and that could trigger multiple overdraft charges. The fees rack up quickly, particularly if the lender tries to withdraw five or six different payment amounts. 

But what if you close your bank account? There are a few different things that could happen:

  • The lender still charges your account and the payment goes through, meaning you will owe money to your bank.
  • Your loan will be handed over to debt collectors and be reported to the credit bureaus, hurting your credit score. Plus, debt collectors are notoriously unpleasant to deal with. 
  • You could end up in court, where your wages could be garnished.

READ MORE: Can a payday lender sue you?

Pro tip: You have some protections from debt collectors courtesy of the Fair Debt Collection Practices Act. If you think your rights have been violated, please contact the Consumer Financial Protection Bureau (CFPB), FTC or your state attorney general’s office.

Why Are Payday Loans So Difficult to Repay?

Payday lenders prey on people with limited financial options. Borrowers usually have bad credit scores and fear they won’t qualify for other borrowing options, like credit cards or personal loans.

Payday loan eligibility requirements are minimal. All you need is a checking account, ID and a pay stub (or other proof of monthly income). There is no credit check. 

Because they target high-risk borrowers, they are a very high-cost way to borrow. Payday lenders charge incredibly high annual percentage rates (APRs), though they won’t describe them as interest rates. Instead, they’re presented as fees. A payday lender will charge you a “fee” ranging from $10 to $30 for every $100 borrowed. 

Pro tip: While it sounds like this would be a rate of 10% to 30%, that’s false.

Because these are short-term loans, a fee of $15 to borrow $100 for two weeks equates an APR of almost 400%. 

It’s almost impossible for most borrowers to repay the loan when the next payday rolls around. This triggers additional fees, and four out of five payday loan borrowers have to roll over their loans in to a new loan, with even more fees and finance charges.

READ MORE: Payday loan extensions

Pro tip: Multiple loan rollovers lead to a cycle of debt known as the payday loan debt trap. Once your stuck in the trap, it’s very difficult to escape. 

READ MORE: Is a payday loan installment or revolving?

Options if You Can’t Repay Your Payday Loan

Because payday loans have such high interest rates, any of these alternatives will be a better choice, or you could use one of these more affordable options to help you pay off an existing payday loan.

  • Cash advance apps: These popular apps (like Albert and Dave) offer small cash advances until your next payday, but don’t charge interest. Instead, you tip them for the service.

READ MORE: Best cash advance apps

  • Credit card cash advance: Though the interest rate on these is relatively high for a credit card, it’s extremely low compared to a payday loan.
  • Payday Alternative Loans: These small loans from credit unions are designed as an alternative to payday loans. Interest rates are capped at 28% and loan terms can be as long as two years.

READ MORE: What is a Payday Alternative Loan?

  • Debt settlement: If you have more than $1,000 in payday loans, it may be time to consider hiring a debt settlement company. They will negotiate with lenders to get you out of debt, but you’ll pay less than the total amount you owe.

READ MORE: Is debt settlement the fastest way to get out of debt?

  • Ask friends and family for help: If you have a friend or family member who is in a position to help, don’t hesitate to ask. Just be sure to discuss a repayment plan in advance. You don’t want to put a friendship at risk.
  • Credit counseling: Credit counseling agencies will set up and administer a Debt Management Plan to help you repay your debts and get your financial situation back on track. 

READ MORE: Debt management vs. debt settlement

To learn more about how to get out of payday loans, check out this video:

The Bottom Line

An unpaid payday loan can stay in payday lenders’ system for six years, and if the loan is handed off to debt collectors, it will stay on your credit report for seven years. 

If you won’t qualify for a credit card or don’t have family that can help, consider a Payday Alternative Loan or cash advance app instead.


What’s the Difference Between a Title Loan and a Payday Loan?

A payday loan and a title loan are both short-term loans, but they differ in terms of the collateral required and the specific repayment terms. 
Payday loans are unsecured loans, which means they don’t require collateral. They are repaid in a lump sum on the borrower’s next payday. They are small-dollar loans that usually max out at a few hundred dollars. 
Title loans are secured loans that require the borrower to provide their vehicle’s title as collateral. The lender places a lien on the vehicle until the loan is repaid in full. Title loans usually are for higher amounts and have longer repayment terms than payday loans. They are usually repaid in installments instead of a lump sum.
Both prey on borrowers with bad credit, but failure to repay a payday loan simply leads to more debt. Failure to repay a title loan puts you at risk of losing your car.

What are the Payday Loan Laws in Texas?

Texas’ laws are some of the least restrictive in the U.S. There is no specified maximum loan amount and no fixed maximum financing fee. This means payday loan APRs in Texas are often higher than 400%. 

Where Are Payday Loans Illegal?

There are several state laws in place to regulate payday lenders. Payday loans are illegal in Arizona, Arkansas, Colorado, Connecticut, Georgia, Maryland, Massachusetts, Montana, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Pennsylvania, South Dakota, Vermont, West Virginia and Washington D.C.

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