Can banks deny that you've paid your loan?
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. 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. 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.
First of all, congratulations on paying off $40k in debt in one year. Mathematically, you'd be better off making the standard car loan payments and putting your extra money toward the student loan. However, there are a few other things that you might want to consider. Over the last year, you've knocked out a whole bunch of different debts.  Feels pretty good, doesn't it?  At your current rate, you could knock out your new car loan in 6 months.  Then you'd only have one debt left.  If it sounds to you like it would be nice to only have one debt left, then it might be worth the mathematical disadvantage you would get by paying off the car early instead of putting the money toward the last student loan. The car loan is 0%, but if you are late on a single payment, they will take that opportunity to raise your interest rate to something probably higher than the interest rate of your student loan.  For this reason, you may decide it is not worth the hassle, and you'd rather just eliminate the car loan as quickly as possible. Either choice is fine, in my opinion, as long as you have a purpose behind the choice and you are committed to eliminating both debts as quickly as possible. As an aside, it is important to remember that even a 0% loan is not really free money, and needs to be paid back.  You know this, of course, but sometimes you see a 0% loan advertized and it feels like free money.  It's not.  You have probably already paid for the loan by forfeiting a rebate.  So although, at this point having already taken this loan and paying for it, you will come out ahead by dragging out your car loan for the full term, in the future do not think that you can make money by buying something at 0% interest. I have a car loan paid in full and even paid off early, and 2 personal loans paid in full from my credit union that don't seem to reflect in a positive way and all 3 were in good standing. But you also  My credit card utilization is 95%. I have a total of 4 store credit cards, a car loan, 2 personal loans. So assuming no overlap, you've paid off three of your ten loans (30%).  And you still have 95% utilization.   What would you do if you were laid off for six months?  Regardless of payment history, you would most likely stop making payments on your loans.  This is why your credit score is bad.  You are in fact a credit risk.  Not due to payment history.  If your payment history was bad, you'd likely rank worse.  But simple fiscal reality is that you are an adverse event away from serious fiscal problems.   For that matter, the very point that you are considering bankruptcy says that they are right to give you a poor score.  Bankruptcy has adverse effects on you, but for your creditors it means that many of them will never get paid or get paid less than what they loaned.   The hard advice that we can give is to reduce your expenses.  Stop going to restaurants.  Prepare breakfast and supper from scratch and bag your lunch.  Don't put new expenses on your credit cards unless you can pay them this month.  Cut up your store cards and don't shop for anything but necessities.  Whatever durables (furniture, appliances, clothes, shoes, etc.) you have now should be enough for the next year or so.   Cut your expenses.  Have premium channels on your cable or the extra fast internet?  Drop back to the minimum instead.  Turn the heat down and the A/C temperature up (so it cools less).  Turn off the lights if you aren't using them.  If you move, move to a cheaper apartment.  Nothing to do?  Get a second job.  That will not only keep you from being bored, it will help with your financial issues.   Bankruptcy will not itself fix the problems you describe.  You are living beyond your means.  Bankruptcy might make you stop living beyond your means.  But it won't fix the problem that you make less money than you want to spend.  Only you can do that.  Better to stop the spending now rather than waiting until bankruptcy makes your credit even worse and forces you to cut spending.   If you have extra money at the end of the month, pick the worst loan and pay as much of it as you can.  By worst, I mean the one with the worst terms going forward.  Highest interest rate, etc.  If two loans have the same rate, pay the smaller one first.  Once you pay off that loan, it will increase the amount of money you have left to pay off your other loans.  This is called the debt snowball (snowball effect).   After you finish paying off your debt, save up six months worth of expenses or income.  These will be your emergency savings.   Once you have your emergency fund, write out a budget and stick to it.  You can buy anything you want, so long as it fits in your budget.  Avoid borrowing unless absolutely necessary.  Instead, save your money for bigger purchases.  With savings, you not only avoid paying interest, you may actually get paid interest.  Even if it's a low rate, paid to you is better than paying someone else.   One of the largest effects of bankruptcy is that it forces you to act like this.  They offer you even less credit at worse terms.  You won't be able to shop on credit anymore.  No new car loan.  No mortgage.  No nice clothes on credit.  So why declare bankruptcy?  Take charge of your spending now rather than waiting until you can't do anything else. To add a little to mhoran_psprep's answer, the clause in question is not binding in perpetuity but only for the duration of the construction loan.  I assume that you are getting the loan from a bank rather than through  the builder.  The way a construction loan works is that the bank  agrees to loan you a certain amount of money for you to pay the builder but you don't get the money upfront to hold  till the construction is complete, or to pay to the builder each month. Each month, or whenever a major phase of the construction is completed, the builder submits a request for payment of (say) $X to you stating what part of the  whole work has been completed and attaching lien waivers from all the subcontractors that did any part of the work that they have been paid in full.  It is up to you to verify  (for your own protection) that the work has in fact been completed and that the work is satisfactory.  If everything looks OK, you send the  request (together with the lien waivers) to the bank which sends its own home inspector to verify that the work has in fact been completed. After the inspector's OK, the bank pays the builder $X  (more commonly $0.95X or $0.9X) and gets a lien waiver from the builder in the amount of the payment.  At this point, the amount that you  owe the bank increases by the amount paid. This goes on till the  house is completed, the municipality or county issues a Certificate  of Occupancy (meaning that that august body is satisfied that  there are no building code violations etc. and the place is  habitable) and the penultimate request for payment is made. Penultimate because a good construction contract withholds  some amount (5% or 10%) of the money owed to the builder  for anywhere from three  months to a year to ensure that the builder will come back  and fix things that were done incorrectly but not noticed  till the house was lived in. (For example, one drywall nail had penetrated an electrical wire creating leakage. This was not discovered during inspection - flip the switch; light turns on? yes, so flip the switch back and move on - but when the light was turned on for three hours after the house was occupied, an electrical fire began inside the wall!)  So, after this settle-down period is over, the builder submits the final payment request and gives a final lien waiver to the effect that everything owed to him has been paid. It is during this period of time that the bank wants to make sure that you don't take on additional loans or debts, or make any material changes to the facts that the bank used in assessing your credit-worthiness and making the decision to loan you the money. Hence the clause that is causing you to worry.  Construction loans usually are at higher interest rates than regular mortgages so that once construction is complete, it is in your best interest to replace the construction loan (paying off its mortgage) with a regular home-owner loan and mortgage.  If you get the regular mortgage from the same bank, you might be able to get some of the fees waived while going to another bank will mean that appraisal fee, termite inspection fee, etc will have to be paid. But in either case, the prohibition against buying that Beemer will disappear; just don't take out that auto loan between the mortgage application and the closing on the regular mortgage as mhoran_psprep's buyer did! Maybe you know something I don't, but as far as I'm aware, you can't get rid of it.  **Student loans are with you for life**.  You will be sent to collections, but it doesn't disappear after 7 years.  Settlements are incredibly rare unless your loan is ballooning... in which case, a settlement doesn't change all that much.  You will lose tax benefits, the government will garnish 15% of your wages, and you will be a debt slave until it's paid off.  Defaulting on student loans is much, much more painful than defaulting on private loans.  The *only* exception to this is if you've made 120 months of repayments while employed at a qualifying non-profit or governmental organization.  And even then, it only applies to federal loans and there are exceptions (better not refinance or the clock resets, for example).  Also, if you default, you will no longer be eligible.  Private student loans have no escape hatch and are equally unforgiving.  Thank your elected representatives. Something else to consider, even if your friend is on the up and up and never misses a payment:  Until the house is paid off, any time you apply for credit banks will count the mortgage payment on your friends house against your ability to pay all your existing debts in addition to whatever new loan you're applying for.  If you're renting a home now, this will likely mean that you'll be unable to buy one until your friends house is paid off. I have a couple of questions regarding Bank Loans.  1.) can they ever trade above par? From my understanding, most get called due to refinancing.  2.) if a bank loan has a floor attached to it that's tied to LIBOR, say 100bps, and that floor is pierced, does the floor automatically disappear, or does that specific loan need to be refinanced before the floor can be done away with? Additionally, should an investor be more cautious when investing in a bank loan without a floor? With regard to the second half of my question, I would think an investor would demand a higher yield without the assurance of a floor. My credentials: I used to work on mortgages, about 5 years ago. I wasn't a loan officer (the salesman) or mortgage processor (the grunt who does the real work), but I reviewed their work fairly closely. So I'm not an absolute authority, but I have first-hand knowledge. Contrary to the accepted answer, yes the bank is obligated to offer you a loan - if you meet their qualifications. This may sound odd, and as though it's forcing a bank to give money when it doesn't want to, but there is good reason. Back in the 1950's through 1980's, banks tended to deny loans to African Americans who were able to buy nicer homes because the loan officer didn't quite 'feel' like they were capable of paying off an expensive house, even if they had the exact same history and income as a white person who did get approved. After several rounds of trying to fix this problem, the government finally decreed that the bank must have a set, written criteria by which it will approve or decline loans, and the interest rates provided. It can change that criteria, but those changes must apply to all new customers. Banks are allowed a bit of discretion to approve loans that they may normally decline, but must have a written reason (usually it's due to some relationship with the customer's business (this condition adds a lot of extra rules), or that customer has a massive family and all 11 other siblings have gotten loans from the same loan officer - random rare stuff that can be easily documented if/when the government asks). The bank has no discretion to decline a loan at will - I've seen 98-year-olds sign a 30-year mortgage, and the bank was overjoyed because it showed that they didn't discriminate against the elderly. The customer could be a crackhead, and the bank can't turn them down if their paperwork, credit, and income is good. The most the loan officer could do is process the loan slowly and hope the crackhead gets arrested before the bank spends any more money. The regulations for employees new to the workforce are a bit less wonderful, but the bank will want 30+ days of income history (30 days, NOT 4 weeks) if you have it. BUT, if you are a fresh new employee, they can do the loan using your written and signed job offer as proof of income. However, I discourage you from using this method to buy a house. You are much, much better off renting for a while and learning the local area before you shop for a house. It's too easy to buy a house without knowing the city, then discover that you have a hideously slow drive to work and are in the worst part of town. And, you may not like the company as much, or you may not be a good fit. It's not uncommon to leave a company within a year or two. You don't want a house that anchors you to one place while you need the freedom to explore career options. And consider this: banks love selling mortgages, but they hate holding them. They want to collect that $10,000 closing fee, they couldn't care less about the 4% interest trickling in over 30 years. Once they sign the mortgage, they try to sell it to investors who want to buy high-grade debt within a month. That sale gives them all the money back, so they can use it to sell another mortgage and collect another $10,000. If the bank has its way, it has offloaded your mortgage before you send the first payment to them. As a result, it's a horrible idea to buy a house unless you expect to live there at least 5 or 10 years, because the closing costs are so high. JohnFx is right: banks hate visits and attention from the regulator (both positive and negative). I would not threaten to file, just file away and let them get in contact with you. The local branch is stalling you. Do not play their game. Since you already went through the first level of support (local branch, phone support), get the bank ombudsman contact and file a complain. It is a major bank, most of the time getting a high level complain will be routed from the upside down through their structure, and hit them. Remember I said they are stalling you? Probably something went wrong, and they are buying time to try and fix it. Also it is worth noting that the ombudsman is usually a line of support above the phone customer support. If going through the ombudsman does not work and/or if you are not willing to wait anymore, file a complain with the government central bank, or similiar institution (trying to be broad here, even if you tagged USA - JohnFx has the link in his answer for the USA's regulator). You can even file a small claims lawsuit, though I do not know the cost of doing it in the USA (in my country small claims court is free for private citizens). Do not report your money as stolen; banks are bureaucratic institutions by nature, and they can silver tongue out of this claim.