Payday loans are short-term loans. They help people in need of quick cash. But, closing your bank account after taking a payday loan can cause problems. This article explains what happens if you do this.
What is a Payday Loan?
A payday loan is a small loan. You usually pay it back on your next payday. The loan amount is small, and the interest rate is high. People use payday loans for emergencies.
Credit: www.moneylion.com
Credit: www.sapling.com
Why Do People Close Their Bank Accounts?
There are many reasons. Some people close their accounts to avoid fees. Others close them because of fraud. But, closing your account after taking a payday loan is not a good idea.
Consequences of Closing Your Bank Account
Closing your bank account after taking a payday loan has consequences. Here are some of them:
- Missed Payments: Your loan payment will not go through. This means you will miss your payment. Missed payments can lead to more fees.
- Late Fees: Payday lenders charge late fees. If you miss your payment, you will have to pay extra money.
- Collection Calls: Lenders will try to contact you. They will call you to get their money back.
- Bad Credit Score: Missing payments can hurt your credit score. A bad credit score makes it hard to get loans in the future.
- Legal Action: Lenders can take legal action. This means they can sue you to get their money back.
What to Do If You Need to Close Your Bank Account
If you need to close your bank account, follow these steps:
Contact Your Lender
First, call your payday lender. Tell them about your situation. They might offer a solution. They might let you pay with a different account.
Set Up A New Account
Open a new bank account. Give your lender the new account details. This way, your payments can continue without problems.
Pay Your Loan In Full
Pay off your payday loan before closing your account. This will avoid any issues with missed payments.
How to Avoid Payday Loan Problems
Payday loans can be risky. Here are some tips to avoid problems:
Borrow Only What You Need
Take only the amount you need. This will make it easier to repay the loan.
Plan Your Repayment
Make a plan to repay your loan. Know when your payment is due. Set aside money for the payment.
Consider Other Options
Look for other ways to get money. Ask friends or family for help. Consider a personal loan from a bank. These options might have lower interest rates.
Frequently Asked Questions
Can I Close My Bank Account After Taking A Payday Loan?
Closing your account may lead to loan default. Check with your lender first.
What Happens If I Default On A Payday Loan?
You may face fees, credit score damage, and legal action. Contact your lender immediately.
Will Closing My Bank Account Affect My Credit Score?
Yes, it can. Defaulting on your loan impacts your credit negatively.
How Do Payday Lenders Collect Payments?
They usually withdraw funds directly from your bank account.
Conclusion
Closing your bank account after taking a payday loan can cause problems. It can lead to missed payments, late fees, and other issues. If you need to close your account, contact your lender first. Set up a new account or pay off your loan. Always plan your repayment and consider other options before taking a payday loan.
Remember, payday loans are for emergencies. Use them wisely and avoid closing your bank account without a plan.