If you default on a personal loan, you may have to go through serious repercussions which could also include impaired CIBIL score.
Perhaps, you had a clear intent of paying back the personal loan however life took a twisted turn. Whether it’s an unexpected termination, accident or medical emergencies, you can always fall trapped to a default.
Your monthly payment will be recorded as 30 days overdue if there’s a defaulting on your personal loan. As a result of your loan delays, you’re directed to the collections and the credit score will be affected negatively.
This time you better be ready for the actionable. Quickly approach your lending institution and work out your issues. You will also witness lenders who offer some kind of relief to lower the effects of COVID-19 pandemic. So, it’s better to act prudently beforehand to save unnecessary costs.
Here’s what happens when you default on your personal loan payment as given under:
Personal loan default consequences
Once you default on your loan, your lending institution your unpaid loan is either paid to collections or sold off to a third party vendor. This will be followed up by phone calls, physical letters, emailers or SMSes for recovery of debt.
In case of an unsecure loan, your lender is free to take this matter to the court to ask for quicker repayments in regular intervals or sell your asset which you may own like a house, car, etc.
Even if you do not have property for sell off or seizure, don’t assume that you’re free of responsibilities and that you do not have to pay back.
Whereas if your loan is secure, whether by a car, FDs or investment portfolios, the lender has full rights to take control of your assets and recover their money. This is included as a part of the loan agreement or contract, so read your TCs closely.
What to do if you face loan default?
- Approach the lender: Act responsibly & call the lender before your next payment falls due. The lender could be kind enough to offer some relief like deferment of loan payments or temporary suspension of payments as per the situation. Choose to deal with your financial issues instead of hiding them too long. So better go to your loan provider to solve before it goes beyond control on default charges.
- Know your rights: Get a better understanding of your rights laid down under Fair Debt Collection Practices Act (FDCPA) if case of defaults or when your debts have reached the collections. Also note that debt collectors cannot use bad language to make recoveries or resort to unfair practices to say the least. You are advised to file a complaint with the Consumer Financial Protection Bureau in case the collector begins to harass or be coercive with you. You must also be apprised of your rights & duties both.
- Connect with a lawyer: Its best to seek legal help if you’re served with a lawsuit already to know your ideal combat. Also, on notice being served upon, you better show up to avoid a default judgment. Otherwise the judge can comfortably tilt towards the collector.
To sum up, if you’re confused, contact a credit counseling agency to draw up a budget for you. This will potentially free up some money & enhance your state of being.