Payday Loan Default

Non payment or defaulting on a payday loan is not usually a good move for a borrower...

As with any other kind of loan, defaulting on a payday loan is not usually a good move for a borrower and it may adversely affect their credit rating.

Loan repaid as agreed, is positively a good move for the borrower...

A payday loan repaid as agreed with the loan company can positively improve the borrower's credit rating.

Rolling Over Payday Loans

Allows lenders to roll over the loans and charge extra interest...

Many loan providers are content for their borrowers not to pay off their payday loans on time, as this allows them to roll over the loans and charge extra interest on the original loan advance. This type of 'repeat business' enables many payday loan lenders to maintain the profitability of their businesses.

Credit Rating Agencies

If a borrower defaults on their payday loan repayments the lender can take civil proceedings against them...

If a borrower is occasionally late in making repayments, many lenders will not report these payment irregularities to the credit reference agencies. This can help people with poor credit history because their credit history is not damaged any further. In many cases, borrowers may avoid data referring to payday loans appearing in their credit history at all. However, if a borrower defaults on their payday loan repayments and the lender decides to take civil proceeding against them, then all this information is likely to be added to their credit history.

Debt Collection Agencies

A lender can pass the debt on to a debt collection agency...

Because many payday loans are for relatively small amounts, taking court action against the borrower, who probably has little money in the first instance, is often not a cost effective way for a lender to try to recover their outstanding debt.

If a borrower defaults on a payday loan, the most likely course of action for the lender is to pass the debt on to a debt collection agency. The advantage for the lender of using a debt collection agency is that the agency should have the staff and other resources to chase the outstanding debt more quickly and effectively than the payday loan lender.

The downside for the lender is that the debt collection agency will take a commission of around 10 percent of the value of the outstanding amount. From the borrower's perspective, debt collection agencies can sometimes appear threatening and might be a factor that discourages repeat business with a payday loan lender.

Consumer Credit Counselling Service

Contact the Consumer Credit Counselling Service...

For consumers who consider that they are receiving unfair treatment from a debt collection agency or payday loan lender, the Consumer Credit Counselling Service (www.cccs.co.uk) offers free, confidential advice and support regarding debt issues.