Having debt looming over you is never a good feeling, and we understand the anxieties and fears that might come from it – especially if you are struggling to pay them back on time. If you’re finding it hard to pay back your payday loans, then your provider might even begin to threaten you with debt recovery or even a county court judgement, but does being unable to pay back a payday loan count as a criminal offence of any kind? Read on to find out.
Understanding the risks of pay day loans
First and foremost, you must understand how a payday loan can lead to significant debt. It may seem simple at first – you borrow money when you need it and then return it with interest after you get paid. There are plenty of people who manage to pay it back without a hitch – this does not mean being stuck in payday loan debt is anything to be ashamed of, however.
This simplicity is what makes payday loans seem attractive. This might even encourage a person to take out another payday loan in quick succession, and this can start to get out of control. On top of this, if you struggle to pay it back, then your lender can extend or defer the repayment, but the interest massively increases if you take this route. Even if the first loan is easy to pay back, it can lead to the temptation to go for a second one.
At this rate, it is only a matter of time before a loan catches up with you. Some people even have to rely on alternative loans to repay the payday loan, and this only complicates matters further by adding to your debt. Loans aren’t usually a viable way to escape debt unless you are looking at consolidation options, so you must consider this before taking out a loan in the first place. If it is too late for that, your lender should be understanding.
So, will you go to jail?
The good news is that you will not go to jail for failing to repay your payday loan or any consumer debt – if your provider has threatened you with jail, then they may be breaking the law themselves.
It should be pointed out, however, that you can be imprisoned for failing to comply with court orders relating to the debt. If you continually ignore the situation as a last resort the court could impose a (short) custodial term, but this is very rare. Any custodial sentence imposed would be for failing to follow the court’s instructions and not directly related to the debt itself.
Communication with the court is key here, it’s only if you ignore any county court judgements and bury your head in the sand that fines or prison may become a possibility
What happens when you don’t repay?
In most cases, the lender will attempt to use the Continuous Payment Authority (a type of card payment that gives a provider the right to take the agreed-upon total from your account) once your loan is up. Failing this, it should not be long before you can expect them to get in contact with you. This might be done by phone, email or text, though some lenders understand the anxiety surrounding late payments, so will not phone you as this can easily add to the stress.
Any good lender will only get in touch with you an appropriate number of times – they know not to damage their rapport with a customer and, again, they should be understanding of your situation. Letters may follow if you do not communicate back, so your best bet is always to discuss this with your lender. This could result in a more flexible repayment strategy tailored to your current finances. Similarly, it is not unusual for your payday itself to be late for any number of reasons including banking troubles, so you will usually be given a couple of days of lenience.
If you end up defaulting on the repayment, you can be charged daily interest, up to a rate of 0.8% per day; this was decided as the limit for daily interest by the Financial Conduct Authority in 2014. Regardless, accumulating daily interest is not something that anybody wants – not only can it damage your credit score long-term, but it will add to your stress and repayment difficulties. You could instead be charged direct late fees; once again, the FCA has put a cap on this. A lender will only charge you up to £15 per late individual repayment, a process sometimes known as a ‘default charge’.
The impact on your credit score
We must emphasise that a negative rating accrued from missing repayments will work against you if you try to apply for future loans. If you are considering a loan to help repay a previous debt, this could end with a lender denying your application. This is why it is very important not to panic when you face a looming debt – you may not go to jail, but there are genuine consequences which you will have to be mindful of.
At Cobra Payday Loans, we pride ourselves on putting our customers first as an ethical payday loan provider. We are open 24 hours a day, 365 days a year – there are no fees (upfront or hidden) for our service, and we only use a ‘soft check’ at first before the lender you are matched with proceeding to a hard credit check if you choose to accept a loan. We endeavour to help our customers understand the payday loan process and educate them to ensure it is not just the first loan of many. For more information or to see about getting a loan from us, get in touch today.