What Happens if You Don’t Pay Back a Loan? The average American has $90,460 in debt, so most adults are familiar with loan repayments. These are usually manageable amounts paid monthly to chip away at debt slowly.
Considering that loan amounts are huge, it’s not unusual for it to take years or even decades to make repayments in full. And when something takes this long, it’s common for slipups to happen from time to time. You might accidentally pay a week late, or worse yet, completely forget a payment.
What happens if you don’t pay back a loan though? Read on to find out everything you need to know about this topic.
If you don’t pay back a loan in only a few days, then it’s considered delinquent. If your payment is late by at least 30 days though, then it’s considered in default (more on this later).
Here are some consequences if you fail at paying a loan back.
If there were no late fees, then borrowers wouldn’t be motivated to make payments on time. So if don’t pay back a loan, you’ll have something extra on top.
Every lender will set their own late fees, so check your loan terms or the lender’s website to find out exactly how much you’ll pay.
You can be reported to the credit bureaus if you miss payments. But the good news is, if you miss one by just a few days or a week, it’s not likely it’ll be reported.
Don’t make a habit of late payments though. Just one might be reported, which can damage your credit score. And if a few get reported, this can really sink your score.
Either way, the blemish can stay for up to 7 years on your credit report! This means it can take a while to rebuild your credit score, so you want to avoid this at all costs.
A loan default happens when your monthly payment is over 30 but under 90 days overdue. The exact days will depend on the type of loan you have and what the terms are.
Once you default on your loan, it’ll go to collections, which can be in-house or a 3rd party. Both will try to contact you to receive the leftover loan amount, so expect them not only to call you, but also to text and email you.
If you have a secured loan, then the lender might seize the collateral. If it’s unsecured, then they (either the collector or lender) might take you to court or place a lien on something like your house (if you own it). It’s also possible for them to have your wages garnished.
If you had a co-applicant for the loan, then they should be aware that they’re responsible to pay should you default on your loan.
Making a payment late is better than not paying at all, so you should schedule a payment as soon as you can. If this isn’t possible within 30 days of the due date, then here are some things you can do.
If you already know you can’t make a payment on time, contact your lender.
Many will work with you so you’ll stay with them as a client. For example, they can temporarily suspend payments or defer them. You might also be able to negotiate lower monthly payments so they’re easier for you to budget.
Those who have good support networks may have some friends and family members who will want to help. Borrowing from your loved ones is the best solution since there are typically no interest rates involved and repayment terms are much more flexible.
Financial matters can cause tension in relationships though, so it’s understandable if you don’t want to ask your social network for money.
If you’re employed, then consider getting a payday loan to make a loan payment on time.
However, you should only save this for emergencies, as payday loans come with the highest interest rates around. But they can help you in a flash since the application process, approval, and loan disbursement all happen within 24 hours.
Debt consolidation is when you combine all your debt into one loan, usually a personal one.
Not only does this cut down on stress since you only have 1 monthly payment as opposed to multiple, but it also cuts down costs. When you transfer all debts to one loan, you typically end up with an overall lower interest rate to pay.
Do note that while this doesn’t eliminate your debt, it does make it easier to manage.
So what happens if you don’t pay back a loan? Several things can occur, and they can all be detrimental to your future.
It’s important that you’re diligent with repayments, as a single late one can negatively affect your credit score. But life happens sometimes, and you don’t have the funds to cover everything.
If you have a poor credit score and/or need money fast, and can’t wait until your next paycheck, then consider a cash advance. This fast money can cover unexpected expenses to lessen your burden immediately.
Find out more about cash advances today. You can apply for one and receive money within 24 hours if you qualify.
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