Can I Close My Bank Account to Avoid Repaying a Payday Loan?

First, let’s be clear: Payday loans are illegal in the State of New Jersey. NJ state laws prohibit interest rates above 30% (which is exceptionally high already) and payday loan interest rates are much higher. Additionally, New Jersey banking laws prohibit the concept of advancing money based on a post-dated check.

What is a payday loan?

A payday loan is a very dangerous undertaking. It is process that is only entered into by those who find themselves in extremely dire financial straits.

The payday “lender” provides the borrower with a relatively small loan (usually less than $1,000). This cash loan is due to be paid back in full to the lender within a very short window of time – often when the borrower next receives a paycheck.

Those who are desperate for immediate money and don’t want to have their credit checked can often be fooled into thinking that a payday loan is the perfect solution to their problem. Borrowers who take out payday loans typically say that they don’t want to borrow money from friends or family, and their credit scores are usually already suffering, so taking out a proper bank loan isn’t on their radar.

Why do payday loans get such a bad rap?

In theory only, the concept of a payday loan is perfectly fine:

“You need rent money and your landlord is breathing down your neck about it. Due to unforeseen expenses this month, you’re short a few hundred dollars. If only you could simply borrow $400 to keep your landlord happy; you’ll have NO problem paying it back the next time you get paid.”

Sounds ok, right? The inherent problem with payday loans is this: if you are even a day late in repaying it, interest starts to accrue at an astronomical (up to 400%) rate. This, combined with the fact that by the time someone considers a payday loan, they are already having money trouble, leads the borrower down a path that can only end badly.

All payday loan borrowers talk themselves into believing that they’ll have the money to repay the loan on time. Most of them, however, arrive at their loan’s due date confounded and overwhelmed. Although they let themselves think their next paycheck would be enough to cover the cost of the loan plus their usual expenses, this is almost never the case.

Therefore, the average payday loan borrower ends up late in repaying their loan, either partially or in full. As soon as that interest starts building, their amount due climbs FAST. What started out as a $400 loan can end up as thousands of dollars in debt, leaving the borrower unable to even begin to make good on their promise to repay.

How can I get out from under a rapidly rising debt?

It can be an extremely scary feeling to know that your debt is rising higher and higher day by day at a rate that you can’t really even determine how much you owe. Drastic measures, like trying to close your bank account or moving away from the payday lender – will not solve your problem. Creditors can garnish your wages (up to a certain percent) until they get their money back, and unless you plan to leave the country and change your identity (not recommended) – they’ll go the distance needed to find you.

Although payday loans are illegal in New Jersey, that doesn’t mean that NJ borrowers aren’t taking out payday loans in neighboring states. If you’ve found yourself indebted to a payday lender, or if you are right now considering taking out a payday loan, you should consider filing for bankruptcy instead. Not only will this wipe out the money you owe to the payday lender, but many of your other debts can also discharged – giving you an opportunity to take stock of your money management with a clean(er) slate.

 

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