Do you have the intentions to get a personal loan? Or you already have some loan balance to clear? Well, taking a loan can be very beneficial and at the same time quite challenging depending on the loan terms and conditions as well as the policies of the bank or financial institution and the fiscal strength of the country’s economy. But once you are able to secure a loan, you owe it a duty to pay back either in installment over some months or upwards of a few years. In this article, we shall look at some five consequences that one is most likely to face for failing to pay back their loans which makes them become loan defaulters.
Avoiding loan repayment would have serious consequences that may negatively impact your life goals. Before you take a loan, you need to ensure that you are in the position to repay it in due time. Defaulting on your loan may seem like an easy way out, but it can create problems that will torment you either in the near or far future.
To Take A Secured Or Unsecured Loans
You can get both secured and unsecured loans from banks. A loan is considered secured when there is collateral (something to back the promise of the borrower), and unsecured if it is based on trust and the borrower’s reputation.
For instance, a secured loan can be a car loan or housing loan. In these cases, the collateral (the guarantee that you will repay the loan) is the car or house in question. If you are unable to repay your home loan, for example, the lending bank has a right to foreclose on your house. Generally, the consequence of not paying a secured loan is simple: you will have to lose whatever collateral you put up for the loan.
Unsecured loans are not backed by any kind of collateral – the bank simply trusts that the borrower will make repayments, with any interest involved. If the borrower does not make repayment, the bank will eventually have to write off the debt as a loss; this means the borrower is in default.
As simple as it may look for the borrower, there are serious consequences to defaulting on a loan that will affect your life goals in the long-run.
5 Serious Consequences of Avoiding Your Loan Payments
1. Employment Difficulties.
Here we are already with a very high unemployment challenge cutting our throats. If you have defaulted on your loans before, it will appear on your credit report. If a debt is written off and you made no effort to negotiate or settle it, the default will remain on your report indefinitely.
A potential employer cannot check your credit report, but they can request to see it. Some companies have stringent policies against hiring people who are in debt, or who have defaulted before. A hiring manager may take this as a sign of irresponsible behaviour, or may decide that your financial woes will affect the quality of your work.
In some industries, such as finance, jobs can be near impossible to get with a poor credit report. It would be very difficult for many people to trust a financial advisor with a long list of defaults!)
2.Higher debt burdens
When you default on your loan payments, the first consequence you will have to face is a higher loan burden. Once you are unable to pay your loan, the total payable amount increases for the remaining duration of the tenure. Besides, the late payment penalties get added to it too. This increases the total liabilities, making it very hard and almost impossible to clear the debt.
3. Having Money Seized from Your Accounts.
Depending on the loan term and conditions as well as the bank’s policies, moneys in your account can be seized. However, in some cases, if you have money in the lending bank, they may be able to take it and use it toward repaying your debt. This is why it is always advisable to check the details before you sign a loan form.
4. Legal Actions Against You.
Sometime, defaulters have what it takes to repay their loans but deliberately refuse to do the needful. If the bank suspects you have the money but simply don’t want to repay, they will take legal proceedings. Actually, no loan is free money. And based on the contract that you signed for a loan or credit card; you are legally obliged to pay back your debts. Usually, you will be served with an initial legal warning if you have not made repayment in on the due date. Legal actions may proceed subsequently towards the recovery of the loan from you.
5. Inability To Access Urgent Loans
If you don’t repay your loans, this will be reflected in your credit report. A poor credit score will make it difficult to obtain urgent loans, such as a home loan or education loan. This will deprive you of important financial opportunities. So, while getting your debt written off may seem like a good thing in the short term, the real costs are seldom worth it.
All the above may make it seem like loans are burdensome and that under no circumstances should you consider getting a loan. It is far from the reality. There is a good debt and a bad debt. Be sure of which ever one you fall into and find your way out of it.
Share your thoughts on taking loans and how you ensure that you don’t get into debt.
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