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As expressed in the title, can a bank deny it that you've paid back the loan? Or how can you make sure that won't happen?

My sister recently got married, but she freaked out when her husband told her that he had previously taken out a loan for $1,500. She was concerned that, although the current balance was only $200, at some point in the future, someone will turn up at their house and ask them to pay the money again with interest.

I'd like to know what steps should be taken to calm her and convince her, that nothing can happen. (I've told her that the transaction report can prove that the loan was paid back, but it/I wasn't convincing enough).

I'd like to know some facts that can prove my point that she has nothing to worry about.

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    Your stated question seems only tenuously related to the reason you give. If the problem is that your sister is freaked because her husband owes $1500, it's not clear to me that the most important factor is whether banks can or can't dispute your payment. A more direct response would be to explain that owing $1500 is not in itself unusual and is nothing to worry about, whether you've yet paid it off or not. If the worry is about whether her husband spends profligately and gets into debt, that's an issue whether he's already paid off this particular debt or not. – BrenBarn Jul 29 '14 at 18:27
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    CAN banks deny that you've paid your loan? Yes. You'd then have to prove that you had. Is it likely? Definitely not; banks have really good bookkeeping. I agree with BrenBarn, though; your stated question doesn't match up with the rest of the post. – ChrisInEdmonton Jul 29 '14 at 18:29
  • No, the money is almost fully paid back, only like $200 are yet to be paid. She's worried, that some day, someone will turn up at their hour and ask them to pay the money again with interest. (I know it sounds crazy, it does to me as well, but that's what she said to me after she found out about the loan). – Lord Zsolt Jul 29 '14 at 18:43
  • @LordZsolt, I had that happen with a department store credit card. After proving I had paid it off, it bounced to a second and then third collection agency. Each time, I had to prove I had paid it off. – ChrisInEdmonton Jul 29 '14 at 19:33
  • Possible, to exactly the same extent that a bank can lose other checks. Improbable, to about the same extent. Fairly easily correctable via exactly the same mechanisms you'd use for any other misfiled deposit: show them the processed check. And yes, she's making a mountain out of a molehill and needs to take a deep breath and gain some perspective. Would she panic just because he has a credit card? Same thing. – keshlam Jul 29 '14 at 19:33
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Maybe there's more to this story, because as written, your sister seems, well, a little irrational.

Is it possible that the bank will try to cheat you and demand that you pay a loan again that you've already paid off? Or maybe not deliberately cheat you, but make a mistake and lose track of the fact that you paid? Sure, it's POSSIBLE. But if you're going to agonize about that, what about all the other possible ways that someone could cheat you? What if you go to a store, hand over your cash for the purchase, and then the clerk insists that you never gave him any cash? What if you buy a car and it turns out to be stolen? What if you buy insurance and when you have a claim the insurance company refuses to pay? What if someone you've never met or even heard of before suddenly claims that you are the father of her baby and demands child support? Etc etc.

Realistically, banks are fanatical about record-keeping. Their business is pretty much all about record-keeping. Mistakes like this are very rare. And a big business like a bank is unlikely to blatantly cheat you. They can and do make millions of dollars legally. Why should they break the law and risk paying huge fines and going to prison for a few hundred dollars? They may give you a lousy deal, like charge you outrageous overdraft fees and pay piddling interest on your deposit, but they're not going to lie about how much you owe. They just don't.

I suggest that you not live your life in fear of all the might-be's. Take reasonable steps to protect yourself and get on with it. Read contracts before you sign, even if the other person gets impatient while you sit there reading. ESPECIALLY if the other person insists that you sign without reading. When you pay off a loan, you should get a piece of paper from the bank saying the loan has been paid. Stuff this piece of paper in a filing cabinet and keep it for years and years. Get a copy of your credit report periodically and make sure that there are no errors on it, like incorrect loan balances. I check mine once every year or two. Some people advise checking it every couple of months. It all depends how nervous you are and how much time you want to spend on it. Then get on with your life.

Has your sister had some bad experience with loans in the past? Or has she never borrowed money and she's just confused about how it works? That's why I wonder if there's more to the story, if there's some basis for her fears.

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    She's never borrowed anything, my mother never borrowed anything, my father only borrowed from relatives. She's too afraid of the unknown. Plus she heard of people who lost their house due to not being able to pay the loan back. My reason has always been that there's no point for the banks to risk their reputation for such an insignificant amount, when they're making billions doing what they do. – Lord Zsolt Jul 30 '14 at 18:21
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    Then this starts to make sense. She doesn't know much about how loans and banks work, she knows about somebody who lost big because they did it wrong, and so she has a high level of anxiety. Sounds like the solution is to discuss how loans work with her calmly -- maybe show her or discuss some of the answers posted here or similar material elsewhere. Maybe someone at the bank would be willing to explain it all to her. There are certainly risks to taking out a loan, namely, not being able to pay it back when the time comes. The thing is to distinguish real risks from irrational fears. – Jay Jul 30 '14 at 18:27
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Yes, if their record keeping is faulty or failed.

It is best to keep all records of repayment. Incomplete records such as signing for a loan yet no repayment receipt can be at least a headache and at most expensive.

The most important document is a record of 0 balance then there is nothing that the courts will allow creditors to collect if their records are faulty.

  • So that means getting bank account statement after the loan has been paid back? Or is there anything else? – Lord Zsolt Jul 29 '14 at 18:54
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    @LordZsolt Yes, keep all statement balances, and most importantly, keep the balance statement that says "0 balance" or something to that effect. It's a rare occurrence, but it can happen. In such an event, if they see that you don't have paperwork, they will of course assume that you are lying and take you to court. If you fax them a copy of their own documentation, it's even more rare for them to pursue it, but then a judge will usually grant you damages. Never give away the original. – user11865 Jul 29 '14 at 19:04
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    +1 for "yes, it is possible". Banks do make mistakes. But they're aware they make mistakes, and there are processes for correcting the mistakes. Having a record of your payments and their acknowledgement thereof is good protection against a low-probability, and fairly low risk, event. – keshlam Jul 29 '14 at 19:30
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    Clark Howard does mention that this can happen especially with the monster mega banks. I have no personal experience with this though – Mark Monforti Jul 30 '14 at 13:13
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    +1 for "Yes this can happen". As an example, I made a payment with a money order and for some reason it never made it onto my account. I keep a receipt for all transactions though, so it was fairly easy for the bank to track the money order down and post it correctly to my account. Which brings me to the helpful tip: Never pay in cash. Check, Money Order, or other payment methods can be traced in those rare cases where they need to be. – Thebluefish Jul 31 '14 at 20:50
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If the loan is for a car, or mortgage there is specific paperwork that is processed when the loan payments have been completed.

For other types of loans ask the lender, what will they give you regarding the payoff of the loan. Keep this paperwork, in hard copy and electronic form forever.

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