Failing to pay could result in your account going into default, the balance being sent to collections, your lender taking legal action against you and your credit score dropping significantly. If money is tight and you're wondering how you'll keep making your personal loan payments, here's what you should know.
Final answer:
Failing to make loan payments on time typically results in paying higher interest rates on future loans, as lenders consider such borrowers to be higher risk. Late payments negatively impact a borrower's credit score, which can further complicate future borrowing situations.
Failure to repay a loan can result in civil litigation. That is, the lender sues you to get back the money, plus any agreed interest and penalties. The details of the loan agreement would usually apply. If there was no formal agreement, the lender would still be entitled to a return of the money lent.
Your loan holder can take you to court. You may not be able to buy or sell assets such as real estate. You may be charged court costs, collection fees, attorney's fees, and other costs associated with the collection process. It may take years to reestablish a good credit record.
Late payments and accounts in default can stay on your credit reports for seven years, meaning you may face financial consequences for years to come. 3 Not only will your credit score be hurt, but lenders that see this information on your credit reports are much less likely to approve you for a new loan in the future.
Your Debt Will Go to a Collection Agency
“Lenders frequently raise your interest rate when you begin to default on your payments after 60 days,” Solomon says. “If you miss a third payment, your account will most likely be closed, and you will be required to pay the entire balance.
After several months of non-payment, creditors may charge off your debt and sell it to a third-party collection agency. This can lead to more aggressive attempts to recover the money as well as damage to your credit score. In some cases, creditors or collectors may take legal steps to compel you to pay.
The payday lender might send your loan to collections. Then there will be more fees and costs. If you do not pay the debt while it is in collections, the collection agency might try to sue you to get what you owe. To avoid collection actions, try talking to the manager of the store where you got the payday loan.
Foreclosure proceedings: The foreclosure will take effect if the loan cannot be repaid. The hard money lender will file a Notice of Intent to Foreclosure at the local authority. After which, the lender will issue a notice of sale, and this will specify the date, time, and location of a foreclosure auction.
If you don't pay a debt collector or collection agency, you'll likely face increasing efforts to collect the debt via phone calls, letters, or even social media contact. Not paying a debt in collections will also hurt your credit score. If you don't pay, the collection agency can sue you to try to collect the debt.
Impact on Your Credit
Missing a payment due date can also hurt your credit history and credit score. That's because payment history plays a major role in credit scoring models, making up about 35% of your FICO score.
Credit risk is the probability of a financial loss resulting from a borrower's failure to repay a loan. Essentially, credit risk refers to the risk that a lender may not receive the owed principal and interest, which results in an interruption of cash flows and increased costs for collection.
Seizure of collateral: If the business loan was secured debt, and most are, at least partially, then your lender can seize the collateral that was pledged to recover what you owe. This could mean losing key business assets, such as equipment, inventory, or property.
Defaulting on a loan can result in late fees, debt collection and potential legal action from the lender. It is important to consider your budget and potential future expenses before taking out a loan to avoid defaulting.
If your loan remains unpaid, your access to benefits like Coins and Vouchers will be disabled, and your Shopee account will also be restricted. SLoan bill options like payment extensions, partial payments, due date changes, auto-debit, and payment plans are not available.
After you fail to make a few payments, your loan will be considered in default, which essentially means that you've failed to follow through on the terms of your loan agreement. Once you're in default, you can be contacted by debt collectors and even be asked to appear in court.
If the regular payday for the last pay period an employee worked has passed and the employee has not been paid, contact the Department of Labor's Wage and Hour Division or the state labor department. The Department also has mechanisms in place for the recovery of back wages.
Reasons to Avoid Payday Loans
Payday Loans Are Very Expensive – High interest credit cards might charge borrowers an APR of 28 to 36%, but the average payday loan's APR is commonly 398%. Payday Loans Are Financial Quicksand – Many borrowers are unable to repay the loan in the typical two-week repayment period.
You cannot be arrested or sentenced to prison for not paying off debt such as student loans, credit cards, personal loans, car loans, home loans or medical bills. A debt collector can, however, file a lawsuit against you in state civil court to collect money that you owe.
Lenders can file a case in a civil court seeking repayment. Defaulters may face asset seizure or wage garnishment. Negotiation and settlement options may be explored before legal recourse. This will also reflect on your credit history and severely affect your ability to secure loans in the future.
The default is reported to credit bureaus, damaging your credit rating and affecting your ability to buy a car or house or to get a credit card. It may take years to reestablish a good credit record. You may not be able to purchase or sell assets such as real estate. Your loan holder can take you to court.
In some states, you can choose jail instead of repaying debt
Some states, including California and Missouri, offer a third option for those who cannot afford to pay their criminal justice debts: choosing jail. By choosing to go to jail, it may be possible to avoid wage garnishment and reduce criminal justice debt.
If you fall behind on repayments, your lender may use a debt collector to help recover the debt you owe. Your debts can also be sold onto a debt collector, so that they now own the debt. Debt collectors may contact you by phone, letter, email, social media or in person.