Why should you NOT default on a loan?
Because, we all want our lives to be simple. ‘Loan’ is that term and service which makes our lives better and simpler in the process of achieving our dreams. But then, along with all the pros; they have their own cons attached while filing a loan.
A couple of years back, none of us were aware about the Covid-19 situation while applying for a loan. It was a major setback for everyone including a range of businesses, people and lives. Many people lost their jobs, some had to shut down their business, and some people lost their lives. Just like Covid-19 was a black swan event for the whole world, the banks provided a moratorium for everyone during this period in order to repay the loans. Ample of them chose moratorium for their loan; and a handful of them restructured their loan repayment process before they entered the default zone. However, restructuring is not always an option in the normal times because it affects your credit score.
While no one does favors, banks definitely do not provide any favors to their customers. However, if they do favors, they charge a handsome amount of interest. Undoubtedly, a loan is such a facility provided by the banks which comes with an interest and stipulated time period to repay in agreement. In any case, if you do not pay the loan on-time, you enter a ‘Default-zone’. It’s not dangerous but it definitely makes your life complicated by affecting your credit scores.
So what do you need to face when you default on a loan?
Drop in your credit score
Why do we always keep an eye on the last date of payment in card bills? It’s not just to safeguard ourselves from the penalties but also from knocking down the credit score. If we skip off paying our credit card bills for more than 15 days, we kick down x points from our credit scores. Similarly, if we don’t pay our loans on time, credit scores are affected by x2 times. And moreover, it makes it difficult for us to pursue a loan for another decade.
Repossession of your property by the lender
Not repaying the loans on time is not a crime. It’s just a situation which is unavoidable. But then, you can’t escape repaying the loan to the lender at least after several intimations reminding you about the payments. If yet, you are unable to decrease your debt, the lender has the right to reclaim your property for summing up the dues. As per the loan balance, they decide to either repossess or sell the property.
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Harassment by the Debt collectors
How much do we all hate those spam calls? Just way too much because it’s irritating to reply one and the same thing repeatedly. In order to collect your debt, the lender provides your details to the third-party debt collector. They harass and irritate you by calling, texting and emailing multiple times.
Hike in penalties and interest rates
What happens when we don’t pay our utility bills on time? We pay an extra amount for proper functioning. Just like that, you would have to pay penalties for your late payment and that’s how the debt balance keeps on increasing until you pay the whole amount.
So, why put ourselves in trouble? Rather, we should keep an eye on the loan repayment dates carefully to avoid default loans and keep it simple. Also, there are different ways to get rid of the legal actions by talking to the lender. Either you get your loan restructured or make changes in the loan tenure. But yes, doing these will definitely affect your credit score without defaulting your loan.