Introduction
Payday loans in the UK are designed for short-term borrowing, but even the most careful borrowers can run into financial difficulties. Missing a repayment on a payday loan can have serious consequences, from fees and credit damage to debt collection. Understanding what happens if you can’t repay is vital so you can take proactive steps to protect yourself and minimise harm.
Immediate Consequences of Missing a Payment
If you miss your repayment deadline, the lender will usually attempt to collect the outstanding balance automatically from your bank account via a Continuous Payment Authority (CPA). If the payment fails, you’ll incur a default fee—capped by the Financial Conduct Authority (FCA) at £15—and interest may continue to accrue. This can quickly increase the total amount you owe, making repayment more difficult.
Communication Is Key
The first and most important step if you can’t repay is to contact your lender immediately. FCA rules require payday lenders to treat customers fairly and offer help to those in financial difficulty. This could include freezing interest, waiving fees, or agreeing to a repayment plan. By reaching out early, you demonstrate good faith and improve your chances of a positive outcome best payday loans uk.
Impact on Your Credit Score
Missed or late payments on a payday loan are reported to credit reference agencies and stay on your credit file for up to six years. This can severely damage your credit score, making it harder to access affordable credit in the future. Even if the lender agrees to a repayment plan, the default will still appear on your credit file, signalling to other lenders that you’ve experienced repayment issues.
Collections and Debt Recovery
If you continue to miss payments without arranging a plan, your lender may pass your account to a debt collection agency or sell the debt to a third party. While debt collectors must follow strict FCA rules and cannot harass you, they will pursue repayment. This can include negotiating settlements, setting up payment plans, or, in rare cases, taking court action to obtain a County Court Judgment (CCJ) against you.
Legal Action and CCJs
If the lender seeks a County Court Judgment, you’ll receive a formal notice giving you the chance to respond. Ignoring it can result in a judgment in default, which can negatively impact your credit record even further. A CCJ stays on your file for six years unless you pay it off within one month. If you do pay promptly, it’s marked as “satisfied,” which still looks better than unpaid debt.
Debt Advice and Support Services
If you’re struggling to repay payday loans, free and confidential help is available:
- StepChange Debt Charity offers tailored debt management plans and advice.
- Citizens Advice can provide legal and financial guidance.
- National Debtline gives free phone and online support to help you negotiate with creditors.
These organisations can also help you draft letters to lenders, request freezes on interest, or create affordable repayment plans.
How to Minimise Damage
To reduce the impact if you can’t repay:
- Act Quickly: Contact your lender as soon as you know you’ll miss a payment.
- Budget Realistically: Work out how much you can afford to repay and propose a plan.
- Prioritise Essential Bills: Make sure essentials like rent, utilities, and food are covered before unsecured debts.
- Check Your Credit Report: Monitor for errors and ensure any agreements with your lender are accurately reflected.
Preventing the Situation in the Future
If you’ve struggled with payday loans, consider alternatives for future emergencies, such as credit unions, authorised overdrafts, or employer salary advances. Building a small emergency fund over time can also reduce your reliance on high-cost credit.
Conclusion
Failing to repay a payday loan in the UK can lead to fees, credit damage, and potential debt collection, but it doesn’t have to spiral out of control. FCA regulations and free debt advice services offer protections and support. The key is to act quickly, communicate with your lender, and seek help if you’re struggling. By understanding what happens when you can’t repay, you can take steps to limit the damage and regain control of your finances.
