When a person takes out a payday loan, he is often required to provide the payday loan company with a check that the company can cash when the loan comes due. The check will be made out in the amount of the debt. A person will likely be able to cash a check when he owes money on a loan, although potentially not with the payday loan lender to whom he owes money.
Payday Loans
When a person takes out a payday loan, he generally cannot simply promise to repay the lender on a given day. Rather, he must provide the lender with a means of access his checking account, either through an account number or through a post-dated check. Once the debt comes due, the payday lender will attempt to withdraw money out of this account. If the account balance is too low, it may fail.
Account Funds
If the payday loan lender attempts to take out more money than is in the account, then the transaction will fail. Rather than receive partial payment, the lender will be informed that there are insufficient funds in the account. The borrower still has access to the funds in the account, but the funds simply were not enough to cover the money that he owed the lender.
Cashing a Check
If a person fails to pay back a payday loan, this will not prevent him from performing other financial transactions, such as cashing checks. The borrower can cash a check at a check cashing store or at his own bank. However, if the payday loan is very late and the creditor has gone to court and received a civil judgment against the debtor, his account may be frozen. This will prevent him from cashing a check with his bank.
Check Cashing With the Payday Lender
Sometimes, payday loan companies will also double as places to cash a check. While a person may be able to cash a check even when he owes money to a payday loan lender, the payday loan lender may refuse to allow him to cash a check at its facilities. If he does, the lender may attempt to seize payment of these funds for repayment of the debt.
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