Regardless of whether you are an individual or running a company, if you have applied for financial aid in form of loan, it is mandatory that you will be required to repay the loan within the period assigned to you. This is the normal practice. However, many a times, repayment gets stalled due to several reasons. What happens then?
Loan default – What to expect
There are several instances, when loans are not paid back either intentionally or unintentionally. Whatever be the cause, if you cannot return the money borrowed, you have to be prepared to face serious consequences. In the paragraphs that follow, this is exactly what has been discussed. So, read on for more information.
As long as you are regular with the repayment, you won’t face any penalties. The moment you fall behind on the payments, you have to shell out money in form of fees and penalties. You could be asked to pay late fees, which will be a certain percentage of the amount you pay as your loan monthly payment. The amount you have to pay will depend on the terms and conditions to which you had agreed upon at the time of taking the loan.
Default on loan payment
As long as you miss a single monthly loan payment, it is fine. The moment you fall behind on two or three payments, this is when the trouble starts. You are considered as habitual defaulter. Under such circumstances, if you have offered collateral in form of your home or any other valuable assets, it gets confiscated. So, you not just lose your assets or a shelter in form of your home but you tarnish your credit rating too. This is one reason why you need to be aware of what you are agreeing to when you sign on the dotted lines at the time of signing up with the loans service provider.
Over a period of time if you have fallen behind on loan payments again and again, it impacts your credit rating adversely. That you have not been able to pay up as you had agreed upon while taking the loan reflects in your credit report. And if you have a bad credit rating recorded, it impacts you in several adverse ways. For instance, you will not be granted loans (either short term loans or long term loans) with good terms and conditions. And even if you get an opportunity to apply for loan, be ready to compromise on the terms as you will be charged very high rates of interest, the monthly payment might be high; you might have to use collateral that will get confiscated if you fail to pay up. These are just few of the consequences. There are many employers that do not recruit individuals with bad credit rating citing them as financially unstable and irresponsible.
As such, it definitely makes sense in repairing your credit rating to enjoy better terms on your loans in future.