Before taking out personal loans, it is important to understand the consequences of not repaying them.
In most cases, there are serious consequences for not paying back your loan on time, including garnished wages and poor credit scores if you default on the debt.
Knowing exactly what happens when you don’t repay a loan will help you be careful about how much money you borrow and from whom you borrow it. For more information about personal loans, read this informative article now.
What Happens If You Don’t Repay Your Loan
Here is what happens if you don’t repay your personal loan.
The lender can sue you:
If you do not repay your personal loan, the lender can sue you. They might also report you to a credit bureau, which could make it difficult for you to borrow money in the future. Lenders usually have the right to seize assets if they are not repaid on time.
If your assets cannot be seized and there is no collateral, the lender may take other legal steps such as seizing payments from social security or disability benefits.
The lender can garnish your wages:
If you don’t repay the loan, the lender can garnish your wages. The lender will send a notice to your employer to start withholding a certain percentage of your paycheck for repayment of the loan. This is known as wage garnishment.
Once your employer receives this notice, they are required by law to follow these instructions and withhold money from your paycheck until the full amount of the debt has been repaid.
The lender can take away your property:
If you do not pay back your personal loan, the lender can take away property that belongs to you. They may be able to take things like a car, house, or money from the bank. This is called repossession.
Therefore it is very important to keep up with repayments on loans, otherwise, serious consequences could occur.
Don’t Repay Your Personal Loan The lender can take away your tax refunds:
If you do not repay your personal loan, the lender may file a claim against you with the IRS to have your tax refund seized.
This is typically done when the debt owed is over $10,000. So not only will you owe money to the lender but now you will owe money to the IRS too.
The lender can ruin your credit:
If you don’t repay your loan on time, the lender can ruin your credit by adding a late payment or other delinquency to your credit report.
This can make it difficult to get loans in the future and will cost you more money when trying to borrow for big expenses like buying a car or home.
In addition, if you file for bankruptcy, most unpaid debts are erased but this type of debt will not be erased.
What are the solutions if you are unable to repay the loan
There are a number of solutions for people who are unable to repay their personal loans.
- One solution is to offer a co-signer on the loan.
- Another solution is to defer the repayment of the loan by extending the term of the contract.
- There is also an option of taking out a new personal loan and paying off your old one with it. For example, you could take out another $5,000 loan and then use that money to pay off your first personal loan.
- Another step is to contact the lender as soon as you realize that you will not be able to repay your loan. The lender may be willing to work out a repayment plan with you or they might be able to offer other solutions such as refinancing the loan.
If you are facing difficulty in repaying your loan due to a paucity of funds, then you can settle your loan.
What is loan settlement?
Loan settlement is the process of negotiating a new repayment plan with the lender or loan servicer. This can be done when you are having trouble paying back your personal loan. The terms of the new agreement can vary depending on what is best for you and your lender.
Sometimes, this may mean lowering your monthly payment to an amount that you feel more comfortable with. Other times, it may mean extending the term of the loan so that it takes longer to repay in full. No matter what happens, never stop making payments.
How to do loan settlement?
In case the regular installment is not being paid over a period of time, the lender will approach the customer for recovery of the payment and may offer the option of settlement.
If you prefer, call your lender to schedule an appointment with the lender. On the day of the appointment, contact the lender and inform them about your decision to settle your loan. Give them sufficient reasons for needing to agree to the terms of your settlement.
The principal of the loan is paid along with a portion of the interest as per the current financial status of the customer.
The loan settlement amount can be converted into installments or paid in one lump sum as decided by negotiating the loan settlement amount with the lender.
If you don’t repay your personal loan, it will show up on your credit report and have a negative effect on your credit score. This is because the lender will list the debt as an unpaid balance. Moreover, if you don’t repay the personal loan in a timely manner, then additional fees may be incurred. So make sure to pay your installments on time.