Can I go to jail for not paying a payday loan?

Can I go to jail for not paying a payday loan?

There’s very little worse than the feeling of debts hanging over your head. Here at Moneyboat, we appreciate how crippling debt can be and how worried consumers become when they can’t pay their debts.

If your debt has been sent to a debt collection agency, your fear and anxiety about the money you owe may increase. Some borrowers have even reported receiving letters from their payday loan providers threatening jail, for example. Although there’s no denying that spiralling debt is a serious problem, we’re here to set your mind at rest about payday loan debt. Let’s get straight to the point.

Can you go to jail for not paying a loan?

You may well have questions such as ‘Can you go to jail for debt in the UK?’ And specifically, ‘Can you go to jail for not paying a payday loan?’ Well, in almost all circumstances, you cannot be sent to jail for failing to pay back normal UK household debts. Although there are a few situations where you could end up with a jail term for failing to comply with courts, failure to pay back a consumer debt, such as payday loans, will not result in a jail term in the United Kingdom.

When it comes to payday loans, UK regulators have woken up to the fact that borrowers were very regularly finding themselves in debt spirals and measures have been taken to try to protect vulnerable borrowers from unscrupulous practices. Therefore, far from being sent to jail, British law is far more likely to protect your rights and help you get back on your feet. So, if you’ve been wondering how to get out of payday loans legally in the UK, there’s plenty of support available.

Despite these reassurances, it’s important to point out that it’s still easy to get into serious financial trouble through repeated use of payday loans. So, let’s look a little closer at why this is the case, and how you can avoid the dreaded ‘debt spiral’ associated with payday loan debt.

Why do payday loans sometimes lead to spiralling debt?

1. Easy access

Despite recent tougher regulations on the industry, there are perhaps more payday loan providers now than there have ever been. Payday loans are still very easy to obtain and the fact that consumers have become comfortable with signing up for personal finance products online has made them even more accessible.

Many payday lenders will offer cash in your bank within hours of applying and the application process itself is simple and quick.

2. Second, third, fourth payday loans

Although most payday lenders will state that they don’t support the repeated use of payday loans, they will often offer a second loan as soon as the first is repaid in full. This could be immediately after the funds have cleared to pay off your first loan. However, they will carry out the same affordability and credit checks as for the first loan.

3. Continuous Payment Authority (CPA)

This is the route through which most payday lenders access your repayment. You sign up to the CPA at the point of taking out the loan, and this gives the creditor the right to automatically withdraw the funds from your bank account on the day you have agreed to make the repayment.

This can cause major problems for some borrowers if:

• It leaves them with no money in their account to service other debts, which can lead to charges and penalties.

• It results in them going into their unarranged overdraft, which can lead to further charges from their bank.

• If they don’t have the funds to cover the repayment on the designated date, the borrower will often be charged a default penalty by the payday lenders, who will also start applying daily interest charges on top of what is already owed.

It’s important to remember that you are within your rights to cancel your CPA at any time, and you can also request a different form of payment if you aren’t keen on signing up for one in the first place.

Borrowers often think they have little choice but to hand over control to their payday lender and fail to realise that they can cancel the payment owed if it will lead them to further financial distress. After all, you won’t face jail if you miss a payday loan repayment, but you could lose your home if you can’t pay your mortgage.

What has been done to stop payday loan providers acting unscrupulously?

Payday loans have become notorious as a route to debt problems. For a period, they were operated with very few controls, often endlessly charging interest on late payments, as well as high default penalties, all wrapped within some very questionable marketing techniques and customer service.

Things have changed in the last few years as the regulators realised the damage being caused to many consumers, many of whom were already vulnerable. Now, payday lenders have a cap on the amount of money they can charge in interest and fees in total. Interest is capped at 0.8 per cent of the loan amount and default penalties are capped at £15. The total you can incur in interest and penalties, regardless of how long you take to repay the loan, is double the loan amount.

On top of the caps, payday lenders have also been instructed to advertise with at least one price comparison site to help consumers find the best deals and rates. There is also a 14-day cooling-off period during which you can pull out of a payday loan agreement, only owing the interest you have accumulated over the days since you took out the loan.

Are there any circumstances where debt can lead to jail time?

There are no circumstances where you will be sent to jail simply because you can’t pay a debt.

Ongoing and active refusal to pay some urgent types of debt, such as child maintenance, criminal fines, or council tax could lead to court action and short jail terms as a last resort. However, you cannot be sent to jail simply because you are unable to repay a loan.

If failure to repay your loan leads to a county court judgment against you, and you then ignore the letters from the courts that form part of the process that enables creditors to take payments directly from your income, you could find yourself in legal trouble. This could lead to a jail term in certain circumstances. However, this would be a result of a lack of cooperation with the courts, not of the failure to pay the loan itself.

Getting help for debt problems

If you are concerned about payday loan debt and your ability to repay your loan, it’s important to be open and honest with your lender. They will often be able to help you repay the loan by adjusting the repayment date, which can sometimes help, although this also often leads to larger interest charges.

Whatever your debt situation, you are not alone and there are several organisations out there that can help with payday loans and advise you free of charge, such as:

• Stepchange

• National Debt Line

• The Debt Advice Foundation

• Citizens Advice

For more help and advice, check out our guides on what to do if you are struggling to repay your payday loan.

When it comes to debt, you don’t need to suffer in silence or live in fear. Talking about money is important, and opening up is key to achieving a brighter financial future. Regulators are there to protect consumers - even those who borrow more than they can afford to repay. Help is at hand, provided you are open, honest, and willing to commit to getting out of your financial hole. And don’t worry - the Boys in Blue won’t be coming for you.