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Can a Payday Lender Garnish Your Wages?

Alex Huntsberger
Alex Huntsberger has covered loans, credit scores, and personal finance for OppLoans since 2015. He is a graduate of Oberlin College and a regular contributor to the Chicago Sun-Times.
Updated on March 18, 2021
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If you fail to pay back a payday loan, having your wages garnished by a court judgment is certainly a possibility.

There are a lot of risks involved in taking out a payday loan—perhaps too many risks. First of all, there’s the interest rate, which comes out to an average APR of almost 400%. Next, there are the short payment terms, which mean you usually have only two weeks to pay the loan back in full. Lastly, there are the lump sum repayment terms, which can be difficult to pay back.

But there are even risks beyond those. For instance, do you know what happens if you can’t pay your payday loan back? One of the options could be to the roll the loan over, which means that you only pay the interest due and then you extend the loan term in return for a whole new round of interest.

But if you default on the loan entirely, the situation will go from bad to worse. You could even end up in court with your wages getting garnished. The answer to the headline above, by the way, is “yes.” If you fail to pay back a payday loan, your creditors can get your wages garnished. The only thing is … it might not be the payday lender that’s doing it.

What happens when you default on a payday loan?

To broadly paraphrase one of the worst lines in modern film history, “the same thing that happens when you default on any other kind of loan.” Defaulting on a personal loan means that you have failed your end of the loan agreement. Once a default has occurred, your creditor pretty much gives up on you paying what was originally agreed upon and shifts into trying recover as much of the loan as they can.

Except that most lenders have a different way of going about this. Instead of trying to collect on your debt themselves, they opt to get out of the game altogether. In situations like this, they will sell your account to debt collection company for a fraction of what you still owe and write the whole thing off as a loss. That debt collector is now the creditor to whom you owe money, and they are the ones who will try and get you to pay.

There’s one aspect of this situation, however, that’s a little different for payday loans than it is for regular loans. Most payday lenders don’t report your payment information to the credit bureaus, which means that any one-time payments you make on that loan won’t help your score.

In contrast, debt collectors do report to the bureaus, which means that defaulting on your loan and having that debt sold off will result in a black mark appearing on your credit report. This is why taking out a payday loan cannot help your score, but it can harm it. This has very little to do with the issue of wage garnishment, but it is a nice little reminder that payday loans are almost never worth the risk.

Creditors can take you to court if you don’t repay.

A debt collection company will first try and get you to repay by calling you on the phone. They might even start calling your friends, relatives, and work associates. While it is legal for them to do that, there are many other practices they might engage in that are also flatly illegal, like threatening you. You can learn more about your debt collection rights in our post, What Debt Collectors Can and Can’t Do.

If trying to collect via the traditional methods doesn’t work, that debt collector can take you to court. The same holds true for payday loan companies that have held onto your debt to collect themselves. But payday loan companies taking debtors to court is possible, it doesn’t happen very often.

The idea of taking a debtor to court is to have the judge rule against you and issue a judgment in the creditor’s favor for a garnishment. That means that a certain amount of money will be deducted from each of the debtor’s paychecks until the debt is repaid in full. While a regular paycheck can be garnished, there are certain kinds of income, like Social Security benefits, are exempt from standard forms of garnishment.

Sometimes, you could end up getting your wages garnished to pay a debt much larger than what you originally owed. The moment you fall behind in payments, most lenders will start racking up fee and late charges—plus court costs once they do take you before a judge. Add in the fact that many companies will sue debtors in bulk, and there is almost no amount too small for them to take you to court over.

What can you do to avoid wage garnishment?

There are three things that you can to stave off the possibility of going to court and getting money garnished from your paycheck

  1. Negotiate: It can tempting to just entirely ignore a debt collector’s calls. Don’t do that! Instead, use this is an opportunity to negotiate with them and settle on a smaller amount. Many debt collectors don’t have very high expectations that they’ll be paid back in full. Take advantage of this and offer them the low-hanging fruit of smaller (but guaranteed) payday.
  2. Show up: You know what happens when one sports team doesn’t show up to the game? They forfeit. And many debt collectors are hoping the exact same thing happens when they take you to court. If you don’t show up, they win by default. So show up! If you do, that means they’ll actually have to make their case, and they might not be as prepared to do so as you’d think.
  3. Hold them accountable: Remember, your debtors aren’t the only ones who can take you to court. You can also take them to court if they violate your rights. And while there are a ton totally legit debt collectors, there are also some who will do illegal stuff to try and intimidate you into paying. Learn about your rights under the Fair Debt Collection Practices Act (“FDCPA”) and be prepared to fight back if a debtor crosses the line.

But in the end, there’s only one foolproof solution. The best way to avoid having a payday lender garnish your wages is to try to avoid taking out a payday loan in the first place!

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