What happens when you default on your loan
If you ever applied for a small loan, whether it be a payday loan, quick cash loan, etc., it’s a no-brainer that you need to be aware of the responsibility and obligation (and consequences if failure to comply) you’ll face in paying it off when the time comes.
Albeit your lender knows you have every intention to pay back what you borrowed, you have no control over the unexpected expenses which then causes you to fall behind payment after payment. Now, you find yourself in a vicious cycle of debt and financial struggle.
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Whether you borrowed from a bank or an online lender, you will be faced with inevitable consequences when you default on your loan/s.
What happens when I default on my loan
First, you should know the guidelines, and terms and conditions of the lenders in terms of applying for and considering a loan to be in default. You see, some lenders go mad when you miss one payment while others could wait for a week or more.
Nevertheless, if you let a loan go on default, expect a call from your lender. Lenders will contact immediately those who have failed to deliver payments, and call after call, the communication may gradually heat up as you continue to fail to repay. If this happens, 30 days after a missed payment, your lender may reach out to credit bureaus regarding the issue. This will add damage to the wound as it result in diminishing your credit score.
Getting caught in a debt trap
Every loan you apply for, you make a promise to repay the amount you had borrowed, plus interest. In an attempt to pay off your first loan, you apply for a second loan—then repeat—getting yourself stuck in a loop of debt. Then when there’s no one else to turn to and you’ve pushed your chances far enough, you suddenly find yourself defaulted on your loan/s.
Impact on your credit
A negative remark on your credit score due to loan default can stay on your report for at least seven years or more. Seven or more years of a derogatory mark on your score can prevent you from getting approved for leases, other loan applications, and jobs as well.
So how can you resolve this? If you start taking the steps to the repayment road, it will get not only your financial status but also your credit file back on the right track. Yes, it is difficult to repay old and hefty debts but if you start now, find several ways to earn extra or cut on expenses, and be smart with your financial choices, you’ll get on your feet soon.
How to prevent defaulted loans
Typically, your ways on preventing a defaulted loan will also have to depend on what type of loan you have and your current financial ability to repay.
When the payment date is nearing and you think you’ll be late or could miss the payment, get in touch with your lender immediately and let them know the situation prior so they can pardon you for the first time, allow late payment under agreed upon conditions, or work with a more manageable payment plan with you.
Be sure to put your agreements with your lender in writing especially if there are vital change in your contract. Understand the terms and consequences if you default on your loan. It should remind you of the repercussions and help you plan your next move in managing your debt.
Have you ever defaulted on a loan before? What’s the reason and how were you able to get through with it? Share it with us!
About Chie Suarez
Chie Suarez has spent time figuring out ways on saving money and stepping away from her go-to retail stores. She then became a writer for Speedy Money which offers hassle-free loans services.