What Happens if I Close My Bank Account and Default on a Payday Loan?
Urgent cash requirements may arise at any time of your life. If you have savings, then you can deal with that efficiently. However, if you have no balance in your account, then going for a loan is the only reasonable option available. If you have a good credit score and sound regular income, you can get a loan from traditional banks, credit unions, and other financial institutes. If not, you will have to take the help of payday loan lenders for your urgent cash requirement.
Payday loans are cash advances provided by private direct lenders for a short time, either two weeks, 31 days, or your next payday, whichever comes early. You need to write a check to the lender’s name and hand it over to him when processing the debt. You will get the amount that is equal to your check amount minus the interest rate and fee. Thus the loan provider takes the interest amount for the period plus other charges when disbursement of the loan. In most cases, the total sanctioned loan amount is either equal to or less than your regular monthly income.
Now, you have to repay the loan. In certain situations, anyone may think that paying the entire salary as payday repayment may hurt their next month’s budget, and they may plan to close their bank account and default on a payday loan. If you are in a similar situation, you may wonder, ‘what happens if I close my bank account and default on a payday loan.’ Read on to find out.
Closing the Bank Account – Is It Right?
Many people ask, ‘can I not close my bank account and open a new account in another bank?’. Yes, you may close an account. However, the process is not as easy as you think. You are allowed to withdraw the amount in your bank account and apply for closing it. Once it did, you may ask to open a new account in another bank. Meanwhile, when the lender deposits your check, it will be returned as your account is closed. So, what happens after that?
Your previous financial institute will keep this in records, and an adverse banking profile will be attached to your name. As soon as the new bank knows about your last banking history of an inclearing check, it may close your account or put it on hold. By not repaying the payday lenders on time, you also risk attracting debt collectors at your home or office.
What Are the Other Options Available?
Block the Check
You can ask your bank to block the check you have given to the payday lender and see what happens. The financial institution will probably charge you a small amount, and you can stop the check debited from your account. However, doing so, you may be safe from the bank end, but you are bound to repay the lenders’ money.
Inform the Lender About Your Situation
You can always have an option to inform the payday lender about your current situation. They may extend the loan for another month, revise interest rates, or issue new credit to pay your next month’s requirement or take part in repayments from you. You will find a way out when you directly talk to the lender about your situation.
Check the Associated Law Regarding Payday Loans
Every state has different laws from one another. Check your state law before you plan to do anything regarding your payday loan. In some states, payday loans are legal, whereas, in others, it is illegal. If your location falls in the second category, you may plan for non-repayment of your payday loan. However, if you have taken an online payday loan, then the lender may have different rights and can ask you for repayment.
Frequently Asked Questions
How Do I Stop Payday Loans From Debiting My Account?
There are many ways by which you can stop payday lenders from debiting your account. You can ask the lender to stop depositing the check in his bank account. If you have given direct withdrawal permission, then ask the loan provider to stop the debit. However, you have to provide proper reasoning to do so.
You can also ask the bank to stop ACH for your payday loan repayment. The bank may charge a fee for doing so, but it doe if you don’t wish to make the payment.
You can also close the bank account so that the check is dishonored automatically. However, you must be prepared to face the debt collector and other consequences if that happens.
You also have a right to file a complaint with the Consumer Financial Protection Bureau (CFPB), but before doing so, check the laws of your state. A court order can help you in such a scenario.
Is Defaulting on a Payday Loan a Felony?
As per the law, the loan provider can’t threaten the borrower for filing criminal charges against him. The law states that you were arrested for not repaying the loan. In general conditions, it is a civil offense.
Can I Close My Bank Account if I Have a Loan?
Yes, you can close the checking bank account even if you have a loan. However, it’s your responsibility to inform the lender about this and give them a new check from the new bank account deposited at the end of the tenure. If you do it willfully, you are trying to make fraud, and in this case, the lender may file a lawsuit against you, but you didn’t jail. Whatever is your situation, it is always better to talk with the lender.
Can Payday Loans Take Money if I Cancel My Card?
Yes, the payday loan takes money, even if you cancel your card. When you permit the lender to debit money from your credit or debit card, you authorize them to withdraw cash through continuous payment authority. So, even if you have canceled your card and eradicated it, the payment will be charged and reflected in your next statement. The only way to stop the repayment of debt is to contact the lender or the bank to help you out.