What Happens If You Can't Pay Off Your Personal Loan?
A personal loan seems like a great way of obtaining much-needed cash when you're in a tough financial situation. The process is fairly straightforward and, as long as you make your monthly payments on time, everything is going to be fine. What happens, though, when you find yourself in the difficult position of not being able to repay your loan?
Assuming that you got the loan from a legitimate financial institution, skipping a single payment won't cause you much trouble, especially if you've notified your lender well in advance. In fact, if your credit score is decent, and you keep your bank updated about your financial situation, you may be able to work out a settlement. However, if you keep missing deadlines, the bank has the right to take legal action against you, and the incident will be registered in your credit report. As a result, your credit score will drop, and that may affect your ability to borrow money in the future.
Before resorting to the court, your lender may try different techniques to get you to pay up. If you have checking or savings accounts with that specific institution, they can seize any money you may have in them. In the worst-case scenario that you used your house, car, or other possession as collateral, it may be repossessed as well. Finally, if there is no collateral to be seized, the bank will hand your file over to a collection agency that will attempt to retrieve the amount you owe -- often in a rude or annoying way.
Things get a little more complicated when it comes to loan sharks or other unregulated sources. More and more online sites pop up, promising no-hassle cash to people who have too bad a credit score to secure money from a legitimate source. These loans come at a high interest and, to make matters worse, you have to provide your lender with your personal information, bank account details, and an authorization to make direct withdrawals whenever they wish.
If you miss a payment, lots of unpleasant things can ensue. You may be left penniless because your lender withdrew the entire amount of your paycheck while still burdening you with extravagant late fees. In the case of loan sharks, abusive or threatening phone calls are used as a means of scaring borrowers into paying. The most disturbing aspect of dealing with loan sharks, though, is that the lender -- who is a complete stranger to you -- knows where you and your family live, and he can show up at your doorstep any time he wishes.
When you miss loan payments, legitimate financial institutions are easier to deal with because are more willing to reach a settlement before resorting to legal action. Therefore, you should avoid unregulated sources that promise abundant cash with no collateral. If that's your only viable option, make sure to borrow the bare minimum amount you need, and plan to pay it back as soon as possible to avoid accumulating unmanageable debt.