Can you go to prison for not paying a payday loan?

If you are struggling with mounting debt, perhaps because you have encountered an unexpected financial emergency, meaning that you have had difficulty keeping up with repayments and you have ended up not being able to pay credit you received, such as for a payday loan. You may be worried then that if you are not able to pay back your debts, that you could end up having to go to prison. However, this is simply not the case. We explain how, and what will most likely happen in the event that you are able to make repayments.

The lender will attempt to collect the money

The payday loan lender will most likely try to collect payments from your account for a certain period of time after the initial due date for payment.

You will be contacted by the payday lender

The first thing a payday lender will do if they are unable to retrieve the amount you owe them (which is usually automatically debited from your bank account, including interest at 5 am on the day of collection, otherwise known as Continuous Payment Authority) they will get in contact you in order to settle the debt. This will be a suitable number of times per day or week, by email, phone and text. It is possible that if you have asked others in the past to pay off your payday loan amount, they may be contacted by the lender in question too. If the payday lender is unable to get in contact with you through these means, you may also receive follow up letters too.

In order to make the situation less stressful for you in what is already a difficult time for you, your best option available to you, if you know you cannot pay back the payday loan, is to contact your lender directly. This can then stop the phone calls or texts which may be adding to your anxiety about the debt, and it could also prevent you from being charged further fines and also possibly work out a suitable repayment strategy that is more manageable for you.

Daily interest is accrued


You will have to pay daily interest for each day that the payday loan is overdue.

If you default on payments for a payday loan, you may find that the lender starts charging you daily interest for each day that the balance remains outstanding. The exact amount will depend on the lender, but the FCA has stated that payday loan companies can now no longer charge more than 0.8% a day, after having implemented price caps in 2014 after taking over the consumer credit industry from the Office of Fair Trading.

With interest accumulating on a daily basis, this means that you should make it your top priority to settle the debt as soon as you possibly can.

One-off default charge

Another new regulation introduced by the Financial Conduct Authority relates to introducing a cap on the default charge payday loan lenders could add to a person’s debt.  This was implemented to ensure that people do not end up in a never-ending cycle of debt and to help provide further protections to borrowers who are struggling to repay. Now, if a customer is not able to repay the loan on time, the default charge they will receive is capped at £15, and it is a one-off fee. This is to help them cover the costs of following up.

Damage to your credit score

As is the case if you default on any other type of credit, such as on credit cards, a mortgage, or another type of loan, this will have a knock-on impact on your credit score. As the lender will send on the information that you have ended up defaulting on repayments to the credit reference agencies, and this will then show up as a default mark on your credit file, which will can be seen by any future lenders. This is why it is vital that before you decide to take out a payday loan, you have made sure that it possible for you to feasibly pay it back without ending up in financial difficulty, as the consequences of not paying it back can be long-lasting.


What sort of consequences do you face if you damage your credit score rating? A bad credit rating will affect your ability to get access to credit in the future. That means that in the event you apply for a loan, credit card, mortgage or even trying to obtain a mobile phone contract, you may find yourself getting declined for something you would have been previously approved for. Alternatively, it could mean that you are accepted for credit, but now have to deal with getting a far higher interest rate, reflecting your negative credit rating.

What should I do if I’m struggling to pay my payday loan?

All hope is not lost if you find yourself in financial difficulty, struggling to pay back your payday loan. As previously mentioned, you should make every effort to contact the lender directly, in order to come to an agreement. You may be able to arrange a new repayment plan that you can afford to take on, and they may agree to freeze interest to make it easier for you to pay it back.

If the problem of paying back this loan also relates to a number of other debts, or you have found yourself in the position where you haven’t been able to come to a satisfactory agreement with your payday lender, you can contact one of the many free, confidential and independent debt advice services. They can provide guidance and support to you, helping you in a variety of ways: for example, they can negotiate with the lender on your behalf, as well as help you to figure out a plan so you can get your finances back on track.  Reputable debt advice services include the StepChange Debt Charity and National Debtline.

Daniel is a loans expert based in London and has been working in the payday loans industry since 2010.