You can stop electronic debits to your account by revoking the payment authorization, sometimes called an “ACH authorization.”
You can stop a payday lender from taking electronic payments from your account at any time, even if you agreed to it before. You may have signed a payment authorization, which is sometimes called an “ACH Authorization. ” This gives the payday lender the ability to debit your account when your payment is due. If you decide you want to stop automatic debit payments from your account, here is what you can do.
Taking out a loan can seem like a good idea when you need money quickly. But loans come with the obligation to repay the money with interest. As the bills pile up, you may start wondering – can I just stop paying my loan?
There is no one who can physically make you pay back a loan, but if you don’t, there are big problems that will happen. If you don’t pay back a loan, the lender will try to collect the debt aggressively.
Here’s what you need to know about the implications of not repaying a loan and what your alternatives are if you’re struggling to make payments
What Happens If You Stop Paying A Loan?
In exchange for a loan, you promise to pay back the amount borrowed plus interest over a certain number of months. If you don’t pay, these things usually happen in this order:
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30 to 60 days late: The lender will call and write you to ask for payment. Late fees start accruing. The missed payment will likely be reported to credit bureaus.
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90 days late: The lender declares the loan in default. Your credit takes a major hit. The account may get sent to collections.
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120 days late: The lender takes money out of the account and sells the debt to a collection agency. You’re still responsible for repaying the debt.
The impacts worsen the longer you go without paying. Even a 30-day delinquency can lower your credit score by over 100 points. A loan default can damage your credit for years.
Secured vs Unsecured Loans
Consequences differ slightly depending on whether the loan is secured or unsecured:
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Secured loans are backed by collateral like your house or car. If you stop paying, the lender can eventually seize the collateral through foreclosure or repossession.
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Unsecured loans have no collateral tied to them. If you default, the lender sells the debt to collections. You may get sued or have your wages garnished.
Either way, not paying has devastating effects on your finances and credit standing.
Why You Should Avoid Defaulting On A Loan
When money is tight, walking away from a loan payment may seem like the only option. But doing so comes with the following drawbacks:
Plunging Credit Scores
Missed payments and loan defaults create black marks on your credit report that drag down your credit scores. A good credit score typically starts around 670; defaults can cause scores to drop below 550.
Poor credit makes it difficult to get approved for future loans and credit cards. When you do get approved, expect to pay painful interest rates.
Aggressive Collections & Lawsuits
Within a few months of default, your loan balance gets sold to a collection agency. Collectors will blow up your phone and mail demanding repayment. Many sue borrowers to recoup the debt.
If they win a judgment, collectors can garnish wages, put liens on property, and levy bank accounts. Getting sued is stressful, even if you have no assets.
Long-lasting Damage
A default stays on your credit report for 7 years. The related collection account sticks around for 7 years from the date it’s paid.
Even after the default drops off, having a poor score for years severely restricts your access to new credit. Rebuilding credit after a loan default takes serious time and effort.
Compounding Debt
From late fees to legal fees, not paying a loan piles on additional costs. Interest charges continue accumulating on the unpaid balance, ballooning what you owe.
Letting debt spiral out of control leaves you worse off, with even fewer resources to repay what you owe. Avoiding this vicious cycle is critical.
Alternatives To Defaulting On A Loan
Rather than walking away, consider these proactive steps to deal with unaffordable loan payments:
Communicate With Your Lender
Contact your lender immediately if you’re struggling to pay. Explain your hardship and ask about options to modify the loan terms, reduce payments, or create a payment plan. Lenders want to help borrowers repay if possible.
Seek Out Financial Counseling
Nonprofit credit counseling agencies can help assess your money situation. They may suggest budgeting assistance, debt management plans, or credit consolidation loans to handle debts affordably.
Pursue Debt Relief Options
If your income simply cannot support the loan payments, debt settlement or bankruptcy may be the answer. Debt relief has major credit impacts but stops collection calls and wipes out part or all of what you owe.
Make Lifestyle Changes
Getting aggressive about cutting expenses frees up cash to keep loan payments current. You may need to downsize your home, take on a side job, or reduce spending on nonessentials. These sacrifices help avoid default.
Borrow Money
As a last resort, borrowing from family or friends can temporarily cover loan payments until you get back on your feet financially. Just be sure you can repay them.
The Bottom Line
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Defaulting on a loan seems like an easy way to escape unaffordable payments, but causes lasting damage to your finances.
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Your credit scores will plummet, making future borrowing extremely difficult and expensive.
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Lenders can seize assets or sue you to recoup the unpaid balance. Collection harassment is highly stressful.
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Instead of walking away, immediately contact your lender and pursue alternatives like consumer credit counseling to manage debts responsibly.
While no one can physically force you to keep paying a loan, the financial and legal consequences make voluntarily defaulting a very unwise choice. If you’re struggling with payments, take proactive steps to control the situation versus ignoring it. Getting help to pay off your loans will leave you much better off in the long run.
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Call and write your bank or credit union
Tell your bank that you have “revoked authorization” for the company to take automatic payments from your account. You can use this sample letter . Some banks and credit unions may offer you an online form.
Even if you have not revoked your authorization with the company, you can stop an automatic payment from being charged to your account by giving your bank a “stop payment order.” This instructs your bank to stop the company from taking payments from your account. You can use this sample letter to submit a “stop payment order.” Here are the steps:
- To stop the next scheduled payment, give your bank the stop payment order at least three business days before the payment is scheduled. You can give the order in person, over the phone or in writing.
- To stop future payments, you might have to send your bank the stop payment order in writing. If your bank asks for a written order, make sure to provide it within 14 days of your oral notification.
- Be aware that banks commonly charge a fee for stop payment orders.
Tell your bank or credit union right away if you see a payment that you did not allow (authorize) or a payment that was made after you revoked authorization. Federal law gives you the right to dispute and get your money back for any unauthorized transfers from your account, as long as you tell your bank in time. You can use our sample letter .
Revoking or cancelling your automatic payment does not cancel your contract with the payday lender. If you revoke or cancel an automatic payment on a loan, you still owe the balance on that loan.
If you’re having a problem stopping a lender from taking money out of your account, you may want to contact your state regulator or state attorney general . You can also submit a complaint to the CFPB online or by calling (855) 411-2372.
How to stop automatic electronic debits
Tell the company that you are taking away your permission for the company to take automatic payments out of your bank or credit union account. This is called “revoking authorization.” You can use this sample letter .
It’s Totally Okay if You Never Pay Off Your Loans
FAQ
What happens if you just stop paying on a loan?
If you don’t pay back a personal loan, you may be hit with penalties and fees, damage to your credit, default, collections and even potential legal action if …Sep 25, 2024.
Can I take a break from paying my loan?
You’ll need to tell them the reason for the holiday. The lender may ask some questions about your finances, to make sure it’s the right option for you. You will have to explain how a payment holiday will help you make payments and when you can start paying them back.
Can you get in trouble for not paying a loan?
Although debt collectors and creditors can’t threaten to have you arrested or sent to jail for unpaid debt, they are allowed to sue you. You’ll know you’ve been sued because you’ll receive a civil court order and summons.
What happens if you can’t afford to pay off a loan?
Contact your lender right away The potential outcomes from contacting your lender could include: Temporary payment deferment. Reduced interest rate. Extended loan term to lower monthly payments.