Loan Defaulter? Know What Happens When You Fail to Repay Your Loan!
From rich business tycoons to poverty-stricken individuals, everyone takes loans for various purposes. There will be situations where we need to take a loan to accomplish our short-term needs when we do not have a huge amount of money.
Loans enable you to repay in easy monthly installments with a certain rate of interest until a set period. However, life is always not a bed of roses. You might find yourself in tricky situations like joblessness, bankruptcy, accident, health problems etc. Under such circumstances, what happens when you can't afford to repay your loans?
Consequences of a Loan Default
For any loans, the lenders and banks will follow up with you through letters or emails even if you break a single repayment. As a borrower, you can diligently approach the bank and explain your dilemma in repayment and request them to restructure the finance in terms of tenure or interest. Failure to repay your loan for more than three months will prompt the lender to seek legal proceedings against you. Overdue will also attract default interest which could become a burden over the period.
The lending institutions send all the credit-related information of the loans you take to the credit bureaus. Default payments will have a negative impact on your credit report and make reduce your eligibility to avail a loan in the future.
For Home Loans: Failure to pay loans will lead to the auctioning your property by the lender after completing the legal process.
For Auto Loans: Failure to pay auto loan will result in seizure of the automobile
For Personal Loans: Personal loans are unsecured loans and banks will file a criminal or civil lawsuit against the borrower for cheque dishonor.
For Gold Loans: Generally, the maximum tenure of repayment is 12 months, and the lender can auction your gold if you are unable to pay back the amount.
Plan of Action
The first recommended action could be to approach the bank and inform them about your inability to repay the loan. Following which, the banks will suggest you the ways to clear your debts. You can request them to reduce your EMI and increase the tenure.
You can opt for settlement when the interest accrued on your loan is more than the principle amount. But however, it will reflect on your credit history and affect your credit score. Always remember that a ‘settled' loan account is not considered as ‘closed' by the lending institutions and credit bureaus
If you do have loans that have not been settled for a long time, it is best to first obtain a credit report and check the state of your previous borrowings, a credit report will consist of all your default accounts and you should consider paying them by contacting your previous lender using pay past dues services. This will correct the damages in your credit history and prevent you from undergoing painful experiences from lenders for unpaid dues.
Unethical treatment by the bank is illegal and a borrower has every right be heard and treated with respect. Seek legal help from a lawyer when you are forced to face the trial for repossession of your property.
Before taking up any loan, see to that you can manage your repayment with your current income however the situation becomes tricky in the future. Minimise your unnecessary expenses until you have repaid your loan.
To get errors in your credit report cleared and to pay past dues to correct your credit history check out the exclusive credit improvement services which put you back on track towards good credit health.