What Happens When You Close Accounts for Payday Loans?
Payday loans can become a serious problem for many people who are unable to keep up with the inflated payments and rigorous payment schedule. When payments become overwhelming and people can't work with the lending company, they may decide to close their bank accounts. This could have far-reaching negative effects.
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Definition of a Payday Loan
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A payday loan is a loan that generally doesn't require a credit check, and the money is loaned until your next payday. At that time, you are either liable for the entire loan amount plus interest, or for a payment that will cover the interest and a small amount of the principal. The interest is typically considerably higher than a standard bank loan.
Benefits
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The benefits of closing your bank account because of a payday loan consist mainly in the fact that the lending company does not have a way to get its money for the payments. Payday loan payments are generally given via postdated check at the start of the loan, and the company deposits them on the appropriate day.
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Misconceptions
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People believe that by closing their bank accounts, they are getting out of the loan, but that is not true. Regardless of whether you have a bank account or not, you still owe the money to the loan company. They have the right to go after you via civil court if you do not repay the money.
Considerations
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While your bank account may be closed, it is possible that the bank will continue to receive and process the company's checks by forcibly opening the account. This can result in a negative balance from bank overdraft fees. You may end up owing not only the loan company, but also the bank--and have your name placed on a list that will keep you from opening a new bank account.
Warning
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Companies that make payday loans are tenacious, and expect you to eventually default on the loan. If you close your account and they take you to civil court, they can force your employer to garnish your wages, freeze any remaining checking and savings accounts, and if you miss a court-ordered payment, can have you arrested for contempt of court.
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References
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