Defaulting payments of personal loans leads to some serious consequences that are often difficult to manage later on. The lenders grant loans by accessing income eligibility of the applicant. However, it can’t be guaranteed that there won’t come any situation of financial crisis leading to loan default.
Situations like job loss, accidents or temporary unemployment might prevent people from paying back their debt. Unfortunately, these reasons are not considered by lenders. Defaulting debt repayment ultimately leads to cumulative financial stress. Here are some of the unavoidable negative effects of defaulting loan repayment.
Ways in Which Personal Loan Defaulting Causes You Trouble
Missing payment of personal loan leads to multiple complicated financial distress. Here are some of the dire consequences of loan defaulting.
1. Impact on Credit Score
Your loan approval depends on your credit score. The credit score is calculated on the track record of your past loan payments by FICO, Experian, Equifax, and TransUnion. Based on that score a report is produced by these credit bureaus showcasing your creditworthiness.
Thus, if you fail to pay back your personal loan, your credit score and creditworthiness will go down. Since, the report reflects all the default history in detail for up to 7 years. This will hamper your future loan application significantly at least for 7 years.
2. Higher Interest Rate
One of the most cumbersome consequences of defaulting loan payment is increasing interest rates. Upon initial interest rate many lenders impose an additional fine that is Annual Percentage Rate (APR). This increases your monthly financial burdens over the remaining loans. Without a surprising increase in earning, it becomes extremely difficult to manage additional interest rates in the future.
3. Legal Consequences
If your personal loan is an unsecured loan then there is a high chance the lender will sue you. Unsecured loans are those loans that do not have any collateral. This implies lenders can’t retrieve the loan payment from collaterals like your home or other valuable assets.
In such cases, you will have to face serious court orders. Your wages may be garnished or your home could be placed on lien. On the other hand, in the case of a secured loan your credit score gets hampered.
4. Harassments by Debt Collection Agencies
In case you fail to pay your loans your lenders might sell your debt to a debt collector agency. This third-party agency would use different tactics to pressurize you to pay off your outstanding loans. They will continuously call you personally, send multiple emails, and may even visit your place and so on. This becomes extremely stressful and you might feel extremely intruded.
Moreover, involvement of debt collector agencies is reported to credit bureaus and recorded in your credit report. This further hampers your creditworthiness for future loan applications.
Endnote
Managing your loan payment is the only way to overcome the above mentioned hassles. In order to manage your debt payment the best option is to contact credit repair experts in Sacramento. Credit repair experts possess years of expertise and knowledge on how to manage personal loans effectively. They can provide excellent guidance on how to repay your loan in a systematic way to avoid financial burdens.
