What Happens if I Close My Bank Account and Default on a Payday Loan?
You’ve decided to close your bank account and default on your payday loan. Unfortunately, this isn’t as simple as walking into your bank and telling them you no longer want an account with them.
Payday lenders require you to have a bank account to transfer funds into. You’ll need to find another way to process payments or set up direct deposit with your employer instead of receiving payments through check deposits.
By reading on, find out what happens if you close your bank account and default on your payday loan!
Understand the consequences
Suppose you close your bank account and default on a payday loan. In that case, the lender will likely turn to one of two collection agencies to recoup the money you owe.
The collections agency’s first step is to contact you by phone, mail, or both. If you don’t respond to their attempts to collect the debt, they may file a lawsuit against you.
Your wages or assets may be garnished if they prevail in court. Sometimes, the lender may also report the debt to the credit bureaus, damaging your credit score.
Suppose you have made a few late payments in the past but haven’t otherwise had any issues with making payments on time. In that case, it’s possible that your credit score won’t be affected by an occasional missed payment.
However, suppose this isn’t an isolated incident. In that case, it’s more likely that closing your bank account will negatively affect your credit rating.
Not opening a new line of credit while still carrying a balance on an existing line of credit is the best way to avoid these repercussions.
Know your options
When considering what to do in the event of a payday loan default, it’s important to weigh all of your available options.
Your lender may try to collect the debt by contacting you directly or hiring a collection agency.
If you don’t repay the debt, your lender may report the default to the credit bureaus, damaging your credit score.
Lenders can file suit to collect outstanding balances. The lender may try to garnish your wages or seize your property if you have any assets.
Sometimes in states, you could be charged with committing a criminal offence if you are found to have written a bad check. You could also be subject to civil penalties, such as court costs and attorney’s fees.
It is essential to understand that when you close your bank account, these penalties may prevent you from reopening an account in the future.
To avoid this situation, contact your lender immediately and make arrangements to repay the debt. However, keep in mind that lenders often charge high-interest rates and steep fees.
These high-interest rates may make it challenging to repay the loan quickly, so it might be best to find a way to cut back on expenses until you can afford to pay off the debt.
Get in touch with customer service right away
Don’t do it if you’re considering closing your bank account to avoid paying back a payday loan! This will only make things worse. Instead, get in touch with customer service right away.
They may be able to help you work out a payment plan or negotiate a lower interest rate. Should you be unable to repay a payday loan in accordance with the terms of the agreement, the lender may take legal action against you.
This could include wage garnishment, asset seizure, and even jail time. So it’s not worth it to close your bank account and default on a payday loan.
It is in your best interest to get in touch with customer service as quickly as you can so that they can assist you in establishing a repayment schedule. Don’t wait until the situation is critical before getting in touch.
It’s much better for everyone involved that way. Lenders have nothing to gain from making their customers’ lives difficult.
You have everything to lose by continuing down this path of self-destruction. Contact customer service right now before it’s too late.
Sometimes, you might have an opportunity to make things right before it’s too late
The lender will likely try to cash the check or withdraw money from the account. If insufficient funds exist, the lender will probably report the failed transaction to ChexSystems. This consumer reporting agency tracks banking history.
It might make it hard for you to open a new bank account. The lender might also sue you for the unpaid debt; if they win, they could get a judgment against you.
This could allow them to garnish your wages or put a lien on your property. Even if you have enough money in the account at this point, not having an open bank account could prevent you from depositing your paycheck.
To prevent these things from happening, contact the payday loan company as soon as possible about why the payment wasn’t received and see what arrangements can be made.
You may be able to repay the balance with a series of payments or arrange an installment plan with your creditor.
If those options don’t work out, consider alternatives like bankruptcy or making a settlement agreement with the creditor.
Avoid closing your bank account
In general, it’s a bad idea to close your bank account if you have outstanding debts. This is because when you close your account, your bank will no longer be able to collect the money you owe them.
It might result in the sale of your debt to a collection agency, which would have a negative impact on your credit score. Additionally, the collection agency may sue you for the debt, which could result in wage garnishment.
Though it might be tempting to close your account and hope your lender forgets about the debt, doing so would be a bad idea.
Final thoughts
If you default on a payday loan, the lender may attempt to collect the debt by using a collections agency or suing you. If the lender sues you and wins, they can get a judgment against you for the loan amount, plus interest and court costs.
The lender may try to garnish your wages or seize your property if you have assets. If you don’t have any assets, the lender may not be able to collect the debt.
