What Happens If I Default My Personal Loan?

WHAT HAPPENS IF I DEFAULT?
Since unsecured loans are granted without requiring collateral, they are considered high risk loans. Lenders are not protected in the event that you stop making payments and default on your loan. Even though lenders do not receive any type of asset when you default, there are still serious consequences for the borrower for defaulting.

Negative Credit Consequences
Your credit is going to be significantly impacted 30 days after you default on your loan. It will drop even more once your are 60 - 90 late. Your debt will probably be handed over to a collection company by that point. No matter how large or small the loan is, the instant it is turned over to collections, your credit score is going to take an even bigger hit.

Financial Penalties
To make up for the lack of collateral associated with the loan, lenders impose pretty stiff penalties for late payments. The fees associated with your loan will increase as soon as you are 30 days late on your loan. If you are late another 30 consecutive days or an additional 30 days at a later time your rates will go up again. Basically, your rates increase every time you are 30 days late on a payment. So, even if you are able to recover, make the payments and prevent the loan from defaulting, the amount of money you owe for the life of the loan is going to increase. And in the event you do default, it is possible that you still may be required to repay the entire principal plus interest as soon as you are contacted by collections, regardless of how many more years the contract of your loan has left.

Lawsuit
When you default on a secured loan, lenders will come and seize whatever property is connected with the loan. That collateral is then liquidated for the purpose of paying off the loan. However, unsecured loans have no collateral tied to them. Lenders are not going to disappear when you default on your loan. They want their money. If the amount owed is significant, the lender will likely present the loan before the court of law. A judge will then decide if you have any genuine grounds for defaulting on your loan, like a loss of job or a serious illness. If there is no unpreventable and unforeseen situation causing the default, the judge will likely require the loan to be paid back in full.

Wage Garnishment
For the purpose of guaranteeing that the borrower repays a court ordered debt, it is likely that the presiding judge will order your wages to be garnished. This type of debt becomes a 'senior debt', similar to a debt owed to the IRS. It is even possible that your defaulted unsecured loan debt can result in the seizure and liquidation of your personal property.

The bottom line is an unsecured loan contract is a legal binding agreement. If the borrower is unable to fulfill their obligation, the legal system is able to impose regulations to make sure the lender gets paid.

Talk To Other People That Have Defaulted on Loans

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