What Happens If I Close My Bank Account And Default On a Payday Loan?

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Payday loans are difficult for borrowers to pay off because of their high-interest rates, lofty fees, and the fact that payday lenders cater to people with low credit scores. Some borrowers will look for creative ways to get out of debt. But most of these initiatives don’t work out as planned, especially closing a bank account and defaulting on the loan. You will learn why this approach doesn’t result in a free pass and some viable payday loan alternatives.

What happens if you default on a payday loan?

If you default on a payday loan, the debt doesn’t suddenly vanish. The aftermath of a loan default can result in more expenses and headaches in the long run. Here’s what a borrower can expect if they default on a loan.

Additional fees and interest

Lenders charge fees if you miss payments, and those fees get higher if you don’t respond in a timely manner. Interest will also accumulate on your remaining balance. You are still responsible for the initial loan balance and anything that accrues because of fees and interest.

Debt collection

If you default on a loan, it will eventually go to a debt collection agency. This agency will call you several times requesting payment for the loan. Debt collection agencies have to abide by several laws, but they can use pushy and aggressive sales tactics such as daily calls and emails. This approach creates extra pressure for borrowers to pay off the loan or negotiate a new payment plan.

Court summons

A debt collection agency can file a lawsuit if you wait too long to make progress with repaying the loan. A court summons is an expensive and timely procedure that’s best to avoid. It’s best to respond right away because ignoring a court summons can result in an automatic ruling against you. A lawsuit can result in a debt collection agency freezing your bank account or taking your property. Effective communication with your lender or debt collection agency can mitigate the likelihood of this scenario.

Damaged credit score

A loan default will hurt your credit score and stay on your credit report for seven years. You can lose hundreds of points on your credit score depending on where it was before the loan default. A damaged credit score makes it more difficult to qualify for financing in the future, and even if you get a loan, you may get stuck with a double-digit interest rate. 

What to do if you can’t pay back a payday loan

Many borrowers have the best intentions, but financial obstacles and high-interest rates can make payday loans feel less manageable. Here are some of your choices if you cannot pay back a payday loan.

Ask for a repayment plan

Asking your lender for a repayment plan can get you back on track. A repayment plan makes the monthly payments more doable. Borrowers spread the loan’s principal over more months. More months on the loan means lower monthly payments. Make sure you get this plan in writing.

Find ways to bring in extra money

You may need to find time outside of your regular working hours to generate extra cash while you have the payday loan. Selling clutter in the house, picking up a side hustle, and working extra shifts can help you cover the payday loan. These can be short-term solutions to help you overcome short-term expenses, but additional income streams can add up. Some people turn their side hustles into full-time careers. You don’t have to think that far ahead now. Right now, this mentality is a useful way to generate extra cash to help with your payday loan.

Ask the bank to stop or reverse the transaction

Everyone should stay on top of their bank accounts. If you have a payday loan and see something suspicious, you can ask the bank to stop or reverse the transaction. You can’t use this strategy to avoid the debt you owe, but you can raise concerns if the payday lender overcharged you.

File a complaint

You can’t file a complaint to get out of a financial obligation, but you can report any issues with the lender that violate the agreement.

Know your rights if you can’t pay back a payday loan

Some debt collection agencies may walk a thin legal line and make illegal threats. A debt collection agency cannot threaten to arrest you for falling behind on debt, and they may not have the authority to collect your income in certain cases. Social Security income is generally off-limits for garnishing. 

Payday loan alternatives

Every financial product has strengths and weaknesses, except payday loans. They only have weaknesses and predatory practices, especially if you consider alternative routes to raising cash.

Credit-builder loans

Credit-builder loans help consumers with low credit scores get access to capital. The monthly payments get reported to the major credit bureaus and can help you qualify for better loans in the future. These loans typically require security deposits, but some lenders provide credit-builder loans with a lower security deposit than the loan’s principal. If you don’t need cash right away and have a damaged credit score, a credit-builder loan can get you back on track.

0% APR cash advances

0% annual percentage rate (APR) cash advances are becoming more popular. Many lenders let you take out hundreds of dollars through these cash advances. You won’t have to worry about interest or fees. The lender takes a percentage of future deposits to repay the debt.

If you only need a few hundred dollars to cover a financial emergency, a 0% APR cash advance can be a great choice. You may have to build up your banking history with the lender before they feel comfortable with extending the limit to how much you can borrow.

Borrow from family or friends

Family and friends may want to help out if you are in a financial pinch. Many family members and friends may be happy with you repaying the debt on your timeline and not charging interest. Borrowing money from people who trust you is a viable route, but you must pay them back. Not paying debt can damage relationships. It’s important to be upfront with family members and friends about your finances and how you plan to repay them.

Debt settlement

Want to negotiate with your payday lender? A debt settlement can help. During this process, the borrower and lender discuss a new way to move forward with existing debt. This may result in a modified monthly payment plan or the borrower agreeing to make a lump sum payment that is less than the remaining balance.

Credit counseling

Credit counselors can provide guidance on how to manage your finances and create a budget. This expert advice can help borrowers discover opportunities to minimize their expenses and find ways to get out of debt sooner.

Staying on top of your payday loan

You can’t ignore a payday loan or any financial obligation. The debt will go to a collection agency, and that can create more headaches in the future. Making any type of progress on the loan can put you in better standing and help you negotiate a repayment plan if necessary. You can also use several alternatives to get out of your payday loan and avoid those lenders moving forward.


I cannot pay off my payday loan. What will happen?

If you cannot pay off your payday loan, a loan default will eventually occur. A debt collection agency will then be responsible for collecting payments and can file a lawsuit against you in the future.

What should I do if my payday lender is charging a higher interest rate than my state allows?

You can file a complaint or tell your bank to stop and reverse transactions.

Can I cancel my payday loan?

You can cancel a payday loan if you repay the balance on the same or next business day after the lender provides you with funds. Beyond that, you cannot cancel your payday loan. Borrowers must repay the loan’s balance, plus interest and fees.

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