If you fall behind on your personal loan, you will enter a world of debt collection companies and pledged wages. Instead, try talking to your lender first.
Almost no one takes out a personal loan without the intention of repaying it. This can mean that you pile up late fees, get contacted by debt collection agencies, or even end up in front of a judge and get your wages seized. And despite these consequences, the case can still occur. You may lose your job or have an unexpected medical emergency or auto repair that ends up breaking your budget.
Here are some consequences that can occur if you can no longer pay your loan installment.
1. Pay late fees
The first thing that will happen if you miss your loan payment due date is a late payment fee. This will be extra money that will be added to what you already owe. The amount of the fee varies, but this information should be fairly easy to find on your loan agreement or on the lender’s website.
When you are able to pay the loan installments again, these late fees simply become part of what you have to pay back.
2. Impairment of creditworthiness.
If you miss a payment for a few days or even a week, it is unlikely to be reported to the credit institutions. However, once this default is added to your credit report, your credit rating will be adversely affected. Delayed payment can seriously damage your review. As soon as you have exceeded the 30 days, your late payment will be reported. If it exceeds the 60- and 90-day mark, the extent of the damage to your rating increases more and more.
3. Call collection agencies
A debt collector’s job is to get you to repay as much of your unpaid debt as possible. And while there are many honest debt collectors, there are those who try dodgy methods. Instead of ignoring a debt collector’s calls, you should do the opposite: talk to them and do your best to negotiate. Most people will be willing to settle for a guaranteed lower amount instead of continuing to pressurize you at the full rate.
4. Go to court and have your wages pledged
This is another good reason not to bypass a debt collector’s calls. If a debt collector cannot get you to pay at least part of what you owe, it is very likely that further consequences will follow. If a judge decides in favor of the creditor, he will seize your wages. After taking your living expenses into account, the garnishment will include part of your income until the remaining debt is paid.
5. Years with bad credit and high interest rates.
By the end of this whole venture, you will likely be burdened with a terrible credit rating that will make you almost unusable for traditional lenders. This means that you have to rely on bad credit loans or no credit check loans to cover emergency costs.
Always talk to your lender when this happens!
No lender likes to receive a call from a customer who reveals that they are unable to pay their loan as agreed – but that doesn’t mean they are unwilling to help. Call them, explain your situation and ask them if there is anything they can do to resolve the situation as satisfactorily as possible for both sides. Showing a willingness to pay has always been a property that financial institutions appreciate.
This may mean asking for a lower interest rate or refinancing your loan to reduce the amount you pay each month. Whatever solution you can achieve with them, it is surely better than the total insolvency of your loan.