How Long Do Unpaid Payday Loans Stay in the System?

The average payday loan borrower spends five months of the year in debt, and repeatedly pays an average of $520 in fees to borrow $375. Additionally, the average borrowers earn about $30,000 annually, and 58% have trouble meeting their monthly expenses.

As a result, most borrowers renew the loan or reborrow the money and end up in the payday loan debt trap. But defaulting on a payday loan will create a completely different set of problems. If you’re struggling, it’s crucial that you take action now.

Stuck in payday debt?

DebtHammer may be able to help.

Unpaid payday loans stay on your credit report for six years

How long will a payday loan company keep records? Payday loan lenders don’t usually look at your credit score and most likely won’t alert the nationwide credit reporting companies when they give you a loan. But, just like any lender, payday lenders will report unpaid payday loans to the credit bureaus, and those defaulted payday loans will remain on your credit report for six years. This will also push down your credit score and make it unlikely that you’ll be approved for a personal loan for several years. If your credit is already less-than-perfect, defaulting on a payday loan could damage your credit history for several years. 

Your credit score is essential if you need a personal loan, want to rent an apartment or try to get a home loan, need to buy a car, or even apply for a job. So, if you can’t pay back your payday loan, finding another option is best before turning to a payday lender.

What happens if you default on your payday loans?

At first, you might get emails, letters, phone calls, or voicemail. If you’ve given the lender any personal contact information, they have a right to search for you using that information. They may try to contact your friends and family, and call your place of work.

Your lender could pass your payday loan agreement and details to a collection agency. Once this happens, you can expect aggressive collection tactics.

The lender is also allowed to take you to court. Despite the common threat, you will not go to jail for defaulting on your payday loan. But you will have to appear at a court hearing, and if you fail to do so or fail to follow a judge’s orders, you could then end up in jail. 

READ MORE: What happens if you close your bank account and default on a payday loan?

Do you already have a payday loan in collections? Watch this to learn the next steps.

Can you get a new payday loan if you default on a previous one?

For the next six years, your credit report will show your initial loan amount, unpaid debts, and any service fees you owe. Interest rates are high and add up quickly. It’s unlikely you will be able to get a new payday loan if you defaulted on a previous one.

Although direct lenders do not report your new loan to the big three credit agencies, lenders will share your default within the network of payday lenders. Your only remaining loan option could be a tribal lender, who is not legally obligated to follow state laws. 

Tribal loans are the worst of the worst of all types of payday loan lenders. The big differentiator between tribal loans and traditional payday lenders is that conventional lenders are mandated to follow the federal payday lending guidelines to ensure proper lending practices; tribal lenders are not. 

Tribal lenders have sovereign immunity from federal and state laws and protection from outside litigation. It’s like having a separate country within a country that operates autonomously. Tribal loans can charge any interest rate they wish regardless of state limits, provide loans with balances higher than state minimums, and even break the terms of their loan agreements with no federal ramifications.

Don’t close your bank account and default

When you take out your payday loan, you grant the lender the right to debit loan payments directly from your bank account by ACH transfer or post-dated check. If a lender attempts to withdraw the amount from your bank account and fails, there’s a chance he will withdraw smaller amounts in an attempt to get some of his money back. Closing your bank account could lead to expensive overdraft charges.

Lenders might still charge your account if you close your bank account to prevent the lender from withdrawing funds from it. If they succeed, you will owe additional money to your bank.

Try to reach an agreement with your payday lender

If you can’t make your payment, call your lender and see if you can get an Extended Payment Plan (or EPP loan.)

If you close your bank account, this increases the chance that the lender will hand over your loan to debt collectors. Debt collectors are annoying, threatening, and aggressive, and they have a right to take you to court.

Debt collectors can be unrelenting. And while there are stories about making them disappear by uttering an 11-word phrase, you could end up facing wage garnishment.

You have some protection from debt collectors, courtesy of the Fair Debt Collection Practices Act. If you think your rights have been violated, don’t hesitate to contact the Consumer Financial Protection Bureau (CFPB), FTC, or your state attorney general’s office.

READ MORE: How to stop automatic payments on your payday loan

Payday loan debt trap

Payday loans are bad because they are short-term, low-limit loans (generally less than $500) with high-interest rates, meant to be repaid from your next paycheck. Annual percentage rates are triple digits, sometimes higher than 600% APR. And there are very few requirements. All you need is an ID and bank account. The lender often doesn’t check your credit report but does verify your income and banking information.

While payday loans do have a few pros — including the lack of a credit check, for example — there are many, many cons.

These sky-high annual percentage rates are almost impossible to repay by your next payday, which triggers additional fees. The high costs lead many borrowers into rollovers, or new loans, which trap them in a cycle of debt known as the payday loan debt trap. Repayment for these types of loans is very difficult.

Payday loans are outlawed in several states because of their extreme predatory nature. It’s so difficult to escape the trap that more than 90% of payday loan borrowers regret their original payday loan.

Payday loan alternatives

  • Cash advance apps: Cash advance apps allow you to deposit money you’ve already earned into your checking account before payday. Generally, these apps are free or charge a nominal fee, but they don’t charge interest on the loans.
  • Credit card balance transfer: Credit card balance transfers move high-interest rates outstanding debt into a lower interest rate credit card to another lender. Some credit cards can have great introductory rates that allow you to transfer up to 75%-80% of the total credit line to save you some cash.
  • Payday alternative loans: Credit union loans work the same way bank loans do. You borrow from a financial institution with interest according to the loan’s terms. You’ll need to join a credit union to qualify for a credit union loan.
  • Ask friends and family for help: If you are thinking of getting a payday loan, they are small amounts up to $1,000 max. If necessary, you could borrow small amounts, like $200 to $300, from several people and pay little to no interest and fees. You can even set up contracts to get payment plans in writing and minimize awkwardness.
  • Credit counseling: Credit counseling agencies advocate on your behalf to negotiate with creditors to resolve debt beyond a debtor’s ability to pay. Some nonprofit agencies charge minimal fees, while others can be for-profit and include high costs.

READ MORE: How to Stop Paying Payday Loans — Legally

The bottom line

It’s no wonder that sometimes people need some quick cash. More than 27% of Americans have no emergency fund at all. But it’s crucial that you evade the payday loan death trap at all costs. These loans require you to pay exorbitant fees and interest. And these loans should be the ultimate last resort to your borrowing needs. Exhaust all other avenues before heading down this path.

DebtHammer: Legitimate payday loan relief that works

Getting out of debt isn’t easy, but with the help of an expert, DebtHammer, it can be painless. We can reduce the total amount you owe by up to 80%, create an easy-to-understand plan with no hidden fees, and offer an easy monthly payment plan. Click here to start your free consultation.


What’s the difference between a title loan and a payday loan?

A title loan is a secured loan against your vehicle, which is used as collateral for the loan. This type of loan is a small amount for a short time, typically 30 days, and you pay the lender a fee to borrow the money. The lender can take your vehicle if you cannot repay the loan. Car title loans allow you to borrow 25 percent to 50 percent of the vehicle’s value.
On the other hand, payday loans are short-term, high interest, low limit loan amounts, usually around $500, that help cover immediate, emergency cash needs that are meant to be repaid at your next paycheck. The average interest on these loans is 391% for a 14-day loan.

What are Texas’ payday loan laws?

Under Texas laws, the statute of limitations on payday loans is four years. If you don’t pay, the lender has four years to sue you. If they don’t file a lawsuit within this period, they can’t sue you after this time has run out. But lenders never let the statute of limitations run out.
Payday lenders are routinely turning to the courts seeking criminal charges when borrowers don’t have the funds to repay their loans on time, a report from Texas Appleseed found. Such expenses can lead to arrest or jail time if the courts decide to pursue a case. It is important to note that you cannot be arrested for defaulting on the loan, but you can be charged for ignoring the summons, and that’s where the judge can issue a warrant for your arrest.
In Texas, the actual third-party lender is not licensed; instead, the credit access business that serves as the broker is the licensee in this regulated industry. The credit access business charges a fee to the consumer for obtaining the third-party loan; this fee is usually calculated as a percentage of the loan amount.
You sign a promissory note with the lender for the actual loan and a separate credit service agreement with the credit access business. Generally, documents are signed at the credit access business location, and payments are made directly to the credit access business.
Check out our Ultimate Legislative Guide for a complete breakdown of Texas laws.

What are the three major credit bureaus?

“The Big Three,” as they are known, are Experian, Transunion, and Equifax.
Experian uses the FICO Score 2 based on Experian data (also known as Experian/Fair Isaac Risk Model v2).
TransUnion and Equifax are based on the VantageScore 3.0 model. FICO and VantageScore credit scores range from 300 – 850. The scores are calculated using the information in your credit report.
When you apply for a loan, request an increase on your credit limit, or apply for a new job or housing, your credit report will come into play.
You can get a free credit report at:

What does underwriting mean?

Loan underwriting is what happens behind the scenes once you submit your application. It’s the process a lender uses to take an in-depth look at your credit and financial background to determine if you’re eligible for a loan. 
During underwriting, lenders will verify your income, assets, debt, and property details before they can approve your loan.

Where are payday loans illegal?

Payday loans are illegal in the following states: Arizona, Arkansas, Colorado, Connecticut, Georgia, Maryland, Massachusetts, Montana, Nebraska, New Hampshire, New Jersey, New Mexico (as of Jan. 1, 2023), New York, North Carolina, Pennsylvania, South Dakota, Vermont, West Virginia and the District of Columbia.

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