This is an article “Here's What Happens When You Don't Pay Your Loans” by Marc Primo
Creditors definitely have better memory than those who borrow. That’s why being irresponsible with your loan payments can get you into a tighter bind than you’d want, without little recourse or solutions. If you think that’s a bit of an exaggeration, read on to find out how difficult financial consequences can come fast if you stop paying your loans.
These days, when a pandemic has rendered more job losses and shuttered businesses than any other time in recent memory, being close to loan defaults is quite prevalent. Deciding to put off your loan when you can still pay is a terrible idea considering how you can incur penalties and interest in the long run.
Here are other grim insights that can give you a clear picture of the consequences.
You incur more debt
Money from loans is always money borrowed That means that you are required to pay off a slice of what you borrowed during your due dates. When you don’t pay off your loans on time, you will incur interest and therefore add more debt on your plate. Today’s average interest rates in the US is lower than in previous years at 5.2%, but can still quickly accumulate through time.
Worse, when you reach a loan default, you’ll be put into a position wherein you have to pay your overdue balance plus more add-ons in full. Those who dismiss their obligations entirely are then passed off to collection agencies who will incessantly pressure you to pay up which can really be stressful.
You’ll be forced to give up the goods
Car and property loans won’t be yours until you pay them off in full. Fail to make payments and banks or lenders can easily take them away from you. This could be a very dire situation to be in considering that those may be two of your most important needs.
In hindsight, it’s best to carefully study the terms of your loans before signing any dotted line which will hold you responsible for years. And just as in any loan agreement, there will always be risks you should take into consideration such as graduated property loans that raise your amortization as the years pass or defending on inflation rates.
Delinquent borrowers are usually subject to repossession or foreclosure and once you get on that list, it would already be pretty difficult to save your investment.
Your credit score suffers
Scores are not for games. Or at least that’s how it is in the lending industry, which is never in any mood to engage in any juvenile contracts. Banks and lenders always go to your credit score for reference to see if you are eligible to apply for loans, so keep those scores up the best you can. Not paying your loans reduces your credit score or any chance for you to get financial help when you most need it.
In a nutshell, credit scores record your debt, bill payment history, and other relevant financial information like income. Banks and lenders report unpaid loans to such credit agencies as Equifax, Experian, and TransUnion who make your credit report available for review.
Check where you currently stand from the AnnualCreditReport.com and fix errors, if there are any, to maintain a good score. A low credit score that settles on the 300 range of the scale means you can’t seek secured loans in the future.
What do you do when you can’t pay?
Given the current pandemic situation, most banks and lenders have issued some form of leniency in collecting loan payments. Credit card companies have come up with relief programs that lower or defer your minimum monthly payments, waive or refund late fees, reduce interest rates, or restructure your payment plans. For now, it’s best you immediately take action by still continuing with your payments even if they are way past due.