Unprecedented financial situations often result in loans, debts, and financial obligations. When you take out a loan, your intentions are to repay the loan as soon as possible. However, financial surprises in the form of sudden unemployment, divorce, medical condition, or other emergencies can arise, rendering you incapable of fulfilling your promise. Once you have missed a payment for your loan, you will face default.

What Does Defaulting Means?

Defaulting on a payment indicates that you are at least 30 days behind on your repayment schedule. Once you are 30 days overdue, your loan will be reported to collections, and your credit score will suffer rapidly. Defaulting can also result if you fail to make the full amount of payment required each month for about three to six months. 

If you are facing default for the first time, your lender may send a notice to you stating that you need to make up for the missed payment. The warning comprises instructions on paying the subsequent payments on time or your credit history will be tainted accordingly and your credit score will tank. 

If the type of loan you took is secured, the lender may threaten you with collecting the collateral such as your house, car, or any other financial assets that you put down as collateral.

Consequences of Defaulting

When you default on your repayments, the result would be that the fees, penalties, and interest charges begin to build upon your account. It means that you will now owe more money than you even took in the first place. Once the debt goes to a collection agency, your credit report takes the hit, and your credit score falls which makes you appear untrustworthy for future potential loans. While you can build and improve your credit again, it’s still an inconvenience you would like to avoid.

However, if you are thinking about ending up behind bars or going to prison - don’t worry! Debtors’ prisons are illegal in the U.S. so if you are getting threats regarding arrest, it’s literally not possible. The most that can happen is that you will receive legal notice to appear in court in case the lender decides to sue you, especially if your loan was secured and the lender has the right to possess the collateral.

What To Do If You Fail To Repay The Loan?

We have heard enough horror stories about sinking in debts and financial disasters to know that defaults can be a serious business. Before going through a downward debt spiral, consider all your options and put a plan in place. Acting on time makes all the difference in this situation and damage control can go a long way.

Talk to your lender about your circumstances and ask if they can arrange a repayment holiday for you. They may add interest on the next repayment and spare you this time.

Contact debt charities to seek help for your loan repayment.

According to FDCPA, lenders do not have the right to abuse you or use deceptive practices to collect their debt. If you are facing harassment, you can file a complaint against them

Hire a lawyer to represent you in court