Getting a loan to buy a home or boost business is the new trend. The only problem is that when not put into good use, loans can turn your life miserable. Failing to repay your loan installments can affect your life in different ways, among them legal action from your lender. If you thought the many calls and texts from your lender were a bother, this article is for you. Here, I will be explaining the consequences of defaulting on a loan.
1. Additional Fees
When requesting a loan, you are required to sign an agreement that entails the conditions for your repayments. For instance, what should happen when you default? Although some platforms don’t charge any fees for late payments, most of them do. Therefore, when dealing with any loan, you must be aware of the penalties that come with defaulting.
These additional fees can mess with your repayment plan as they increase the amount you are expected to pay every month. What’s even weird is that some institutions may charge a fee if they unsuccessfully attempt to withdraw cash from your bank as per the agreement. This may arise from non-sufficient funds. When dealing with such scenarios, and you know you will be late with the repayments, it’s recommended that you stop the automatic payments. By so doing, your lender won’t have any issues accessing your bank account. As a result, you will only need to cater for the late payment fee.
2. Lower Credit Score
What factors determine your credit score? If you are seeking an answer to this question, then you should have it in your head that your repayment history is among the leading factors to consider. From an expert’s perspective, it counts for 35% of your FICO rating. Therefore, the moment you miss even one repayment, you should know that this affects your credit report negatively. The sad part is that these defaults can stay in your credit report for even more than seven years.
3. Inability to Access Loans in the Future
Buying a home is a dream come true for many individuals. However, it doesn’t come easily. There is a price that has to be met. Most people use a home loan to acquire their first-ever home. When it comes to approving for such loans, most lending platforms use your credit score to come with a decision. As mentioned earlier, defaulting loans do affect your credit score. This, therefore, means that you may experience trouble accessing home loans in the future.
Does this mean that you can’t obtain home loans with a poor credit score? The answer is that there is still a chance for you to do so, as long as you heed to the right approach when dealing with financial lending institutions. When this common situation comes your way, you can start by hiring the services of a mortgage advisor and ask for help. These specialists are much informed and work closely with specialist lenders. Through their support, you are more likely to access a home loan regardless of your credit score or issues related to your finances.
4. Loss of Collateral
More often than not, you will need to use your possession as collateral when applying for a loan. Well, secured loans may sound like the best to work with because of their low-interest rates. The fun part ends when you default on payments. Since then, the item used will no longer be yours. Your lender will send someone to collect the item used to work as collateral. Most people have lost valuable possession, such as cars, beautiful homes, and even savings for something that would be avoided by making the payments on schedule.
5. Court Battles
If you thought that the endless texts and calls from your lender were a problem, then you are yet to witness what your lenders can do once they decide to deal with you the legal way. Well, they are permitted to file charges against you for failing to make payments on time. If you are not familiar with the court proceedings, then this isn’t the way you would want to go. On many occasions, borrowers end up losing these court battles, and this means loss of property and fees used for the legal proceedings.
Defaulting on loan repayments always come with consequences. If you thought that the endless texts and calls that you receive from your lender were everything, this article is tailor-made for you. It explains the leading five consequences that come with being a defaulter. Read through the piece to have a better understanding of the reasons why you shouldn’t mess around with late repayments.