Defaulting means the failure of making payments on the personal loan for different months. It’s a big thing because it may have negative effects on creditworthiness. Besides taking a massive hit, the credit score will make you struggle to secure credits for the coming years. And despite securing newer credit, you may likely have trouble getting a good interest rate.
Well, you will not receive a solution that’s one-size-fits-all for non-payment of personal loans. When it is about the consequences of the personal loan default, specifics entirely depend on whether your loan has been unsecured or secured. In case the loan is secured, it gets backed by a type of collateral such as a vehicle. And this collateral may get be seized just in case you default. On the other hand, for an unsecured personal loan like Payday Loan Online, the borrower may experience wage garnishment.
Personal loan defaulting results:
- A drop in the credit score (a maximum of 110 points from a single payment that’s missed).
- Face difficulty in securing credit for years.
- Experience challenges when locking in a decent interest rate, even when you can secure credit.
- Wage garnishment when the loan gets unsecured.
- Seizure of assets, when the loan has been secured.
The Different Loan Defaulters: Kinds
Here are the three types of loan defaulters in general:
#1 Careless people
They are termed as careless as they have taken excess loans. Usually, these defaulters do not analyse the income or expense balance right before taking the loan. These people realise the mistakes only after their EMI gets started. In general, they are unable to afford their EMI expense.
#2 Genuine people
They are the ones who experience genuine issues. They pay the past EMI’s on a timely schedule. But because of some genuine issue, they may not be able to pay back their loan for a particular month or two.
#3 Over-smart individuals
These are the ones who try to game banks. They may think that they mislead banks by offering fake reasons for their non-payment. These defaulters are also called the wilful defaulters.
Types of Repayment Defaults
1. Days 0-30: A majority of Quick Cash Loan lenders offer the grace period in the initial 30 days after the missed payment. That means the lender shall wait right before reporting a missed payment to their respective credit bureaus.
2. Days 30-60: Upon the first missed repayment, the lender contacts the borrower and asks when they can expect their payment. They may get charged with a late fee too.
3. Days 60-90: A lender continues contacting the borrower and offers suggestions for how their default can get resolved. Once the span of 60 days (or two months) gets over, the lender shall report the borrower about being late for their repayment
4. More than 90 days: Most lenders shall either aim at settling the debt or simply begin a litigation process.
So, the longer the repayment span, the worse damages they have to face. And in case someone misses out on not more than payments, they may get back on track without much long-term damage. However, if the payments are missed for more than six months, it might be dangerous!