If you are worried about a missed payment, it helps to know how loan default in Denver, Colorado, actually works before anything escalates. Default is a process with steps, and you have rights and choices at almost every one. This guide explains what default means, what Colorado law says about small loans, and what to try first.
Quick answer: Default means you have missed payments long enough that the lender treats the loan as failed, which can lead to collection calls, credit damage and sometimes a lawsuit. In Colorado, small loans are capped at 36% APR, the returned-payment charge is limited, and you cannot be jailed over a small loan. Calling the lender early and asking for a plan usually costs far less than waiting.
What default really means
Default is not the same as being a few days late. A late payment misses its due date. A loan becomes delinquent as missed payments pile up, and that is when credit reports and collection calls usually begin. Default is the last stage, when the lender may close the account, hand it to a collector, or file a lawsuit.
The exact point of default is written in your contract. Look for the words “default,” “late,” and “notice” to see how many days you have and what the lender must send you first.
What Colorado law sets for small loans
Colorado is a 36% APR state. Voters approved Proposition 111 in November 2018, and it took effect February 1, 2019. Under the Deferred Deposit Loan Act, what people used to call a payday loan is now a small installment loan capped at 36% APR. A lender may not lend you more than $500 at one time, and the minimum term is six months. See how Colorado’s 36% APR cap is calculated.
A longer term makes each payment smaller. A $500 loan at 36% APR repaid over six months costs about $53.79 in interest, about $92.30 a month, and about $553.79 repaid in total.
What a missed payment can cost you
For a Colorado deferred deposit loan, default charges are limited. If a payment is returned, the lender may charge one returned-instrument fee of no more than $25 per loan. A court may also award court costs and reasonable attorney fees if the lender sues and wins, and the attorney fees may not exceed the loan amount. No other default fees are allowed.
On the $500 loan above, a bounced payment could mean about $92.30 plus a charge of up to $25, or about $117.30 that month. That is painful, but it is a fixed and limited amount.
You cannot be jailed over a small loan
Collectors sometimes use fear to get a payment. In Colorado, you cannot face a criminal penalty for taking a deferred deposit loan or because a check bounces, unless you closed the account before the agreed date. If anyone threatens arrest, write down the name, date and what was said. Our guide to filing a complaint against a Colorado lender explains the next step.
Call the lender before you miss a payment
The best moment to deal with default is before it happens. If a payment will be short, contact the lender several days ahead. Useful requests include:
- A new due date that matches your payday.
- A temporary lower payment, in writing.
- The exact amount needed to bring the loan current.
- A written statement of any fee before you agree.
Keep notes of every call. A promise made over the phone is hard to prove later.
Paying early, canceling and renewing
If you repay a deferred deposit loan early, the lender must refund a prorated share of the finance charge for the time left. You may also cancel a new loan on or before 5 p.m. the next business day after you take it.
A deferred deposit loan may be renewed only once, at no more than 36% APR, with a prorated refund if you renew early. After that, the debt must be paid, though a lender may refinance it as a supervised loan. Compare that offer carefully. Our explainer on the Colorado Uniform Consumer Credit Code covers supervised loans.
Collections and your credit report
If a loan stays unpaid, the lender may report it or pass it to a collector. Under the federal Fair Credit Reporting Act, most negative items can stay on your report for up to seven years. A collector must follow federal contact rules, and you can ask for written proof of the debt. Check your reports free at AnnualCreditReport.com and dispute any errors.
If a lender sues you
A lawsuit does not happen overnight, and ignoring one hurts most. If you are served with court papers, read the response deadline right away. If you do not respond, the lender can ask for a judgment by default.
In Denver, civil cases like this are heard by the Denver County Court, and Colorado small claims cases are limited to $7,500. Colorado Legal Services helps low-income residents with civil problems such as debt collection. In general, a lender needs a court judgment before it can garnish wages, so ask a legal aid group what protections apply to you.
Loans secured by a car
Default is more serious when property backs the loan. Colorado has no separate title-loan law. A loan secured by your car is a consumer loan that must follow the Uniform Consumer Credit Code and come from a licensed lender. You can lose your car if you default. Read are car title loans legal in Colorado before putting your vehicle on the line.
Cheaper ways out before default
A new high-cost loan rarely fixes a money gap. Better first steps are often free or low cost:
- Ask for a payment plan from the lender, a utility, or a medical provider.
- Try a credit union. Check membership rules. Some offer payday alternative loans, which charge at most 28% interest plus an application fee of no more than $20.
- Use a lower-rate personal loan if you qualify. As an illustration only, $1,000 at 18% over 12 months is about $91.68 a month and about $100.16 in interest.
Compare choices in credit unions versus high-cost lenders in Denver.
Where to get help in Denver
- 2-1-1: Mile High United Way runs 2-1-1 for the Denver area. Dial 2-1-1 for rent, food and bill help.
- Energy bills: Xcel Energy offers payment arrangements for past-due balances. Colorado’s LEAP helps with winter heating through Colorado PEAK, and Energy Outreach Colorado helps income-qualified households.
- Colorado Legal Services: help with debt collection for eligible residents.
Active-duty service members and covered dependents have a 36% MAPR cap under the Military Lending Act. Civilian workers are not covered.
Check the lender and know where to complain
Many online lenders say they are tribally owned or partnered with an out-of-state bank. Check any lender’s license with the Colorado Attorney General at coag.gov, where you can also file a complaint. The Consumer Financial Protection Bureau takes complaints about lenders and collectors too. Our guide to your rights as a Colorado loan borrower is a good next read.
Frequently asked questions
It depends on your contract. Some lenders declare default after one missed payment and a grace period, others wait longer. Check the default section of your agreement and ask the lender in writing.
No. You cannot face a criminal penalty for taking a deferred deposit loan or because a check bounces, unless you closed the account before the agreed date.
On a Colorado deferred deposit loan, one returned-instrument charge of no more than $25 per loan is allowed. A court may add court costs and reasonable attorney fees only if it awards them.
Often, yes. Missed payments and collection accounts can be reported and may stay on your credit report for up to seven years under federal law.
Yes. A civil case would be heard by the Denver County Court. Respond before the deadline on the court papers, and consider asking Colorado Legal Services for help.
A deferred deposit loan may be renewed only once, at no more than 36% APR. After that the debt must be paid, though the lender may offer a refinance. Compare the total cost first.
This article is educational and is not financial or legal advice. Before you borrow, confirm the lender is licensed with the Colorado Attorney General — Consumer Credit Unit (UCCC Administrator), and read the fee disclosure in full.