Statistics show that around 75% of Canadians have some amount of debt. And around 30% of Canadians say it negatively impacts their daily life.
If you are experiencing a default on a loan, you may not know what to expect. This can commonly happen when you have a personal loan that you can’t pay.
People may take out a personal loan because they are in debt. But this is not always a good option if you are unable to pay off the monthly installments.
Keep reading to find out what happens if you default on a loan.
What Is a Personal Loan Default?
A loan default is something that nobody wants to experience. When you default on a loan, this means you have missed the required payments.
This happens when a payment is late by 90 days. Keep in mind that this can vary depending on the type of loan, the lender, and the loan agreement terms.
Most personal loans have a grace period if you are late for a payment. You may receive a small fee or a week or two before the payment is required again.
For the payment to be reported as a late payment, it has to be 30 days past due. Once you default on a loan, things can start moving quite quickly.
It is important to understand the financial impact of loan default.
If you default on a personal loan, there are some serious consequences to this. The first consequence is that your credit score could become very damaged.
A late payment on your loan could knock off A lot of points and impact your credit report. The loan lender can move the unpaid loan balance to several locations.
This could be to an in-house collections department or a third-party debt collector. You could even be taken to court if the loan is unsecured.
If it is secured, the lender could seize your assets to cover the losses. This could lead to a repossessing of a vehicle, valuable, or your home.
These are some of the more severe instances, but it is important to keep them in mind.
What to Do If You Default On a Loan
A loan default penalty is something you need to take seriously. Defaulting on a loan has serious consequences that you will have to face head-on.
If you are facing a loan default, here are some steps you should take.
Contact the Lender
Oftentimes, people can’t predict when they will have to default on a loan. You may have lost your job, or you overestimated how much you could pay.
It is very important to be proactive in these kinds of situations. Contact your lender to let them know that you don’t have the money for the next payment.
They may be able to give you a grace period or provide a temporary suspension. In some instances, they may even provide a deferment of loan payments.
Understand the Law
When it comes to financial issues, it is easy to get kicked around. If your loan has been passed on to a debt collector, you need to understand what your rights are.
Dealing with a debt collector or a lender is not going to be fine. But they are not legally allowed to abuse or deal with you unfairly or in a deceptive way.
If they are behaving in this way or harassing you, you can file a complaint.
Consult a Credit Counselor
Before you ever get a personal loan, you should have your finances in order. You should understand what is coming in and what has to go out.
If you had to default on a loan, you should speak with a credit counselor. They can instruct you on how to create a realistic budget to pay back what you owe.
Hire a Lawyer
When it comes to defaulting on a loan, there are several outcomes. One of the more severe outcomes is being served with a lawsuit.
If this is the case, you should hire a lawyer as soon as possible. You will most likely need to appear in court and it is always better to have someone represent you.
How to Avoid Defaulting on Loans
There are many reasons why you may want to take out a personal loan. You may do this so you can buy a large purchase or pay off an emergency expense.
No matter the reason, you need to be smart when you are doing this. Understanding how loans work can help you avoid defaulting in the future.
The first thing you need to do is make sure you can handle the monthly payments. Evaluate your expenses and your income, weighing in unexpected expenses.
It is always a good idea to have a backup plan if something were to go wrong. For instance, you could have a monthly payment set aside in case you got behind in payments.
You should also make sure your job is stable and that there is very minimal risk of you losing it.
Default On a Loan: What Happens Next
Are you worried about getting a personal loan? If you have to default on a loan, there are certain consequences that follow.
This includes things like having your credit score impacted and owing a variety of fees. You could even have some of your assets seized if that is how the loan is secured.
Are you looking for a low-risk loan option in Canada? Contact us today at Eastern Loans to apply for a no-credit-check loan.