Consequences of Defaulting on Your Debt
Your dreams and aspirations know no boundaries, and you try your level best to fulfil them through whatever limited means you have. Sometimes you pass on the opportunity, but in some instances, the chance is too good to be passed.
But what if your personal savings are not enough? Would you let your dreams and aspirations die down?
Most certainly not! As a human being, the zeal to fight against adverse circumstances is hardcoded into our personality, and we leave no stone unturned to make our dreams come true.
In such situations, you can Take a Low-interest Personal Loan to fulfil your dreams. It could also be a Home Loan, Business Loan, Education Loan or any other type of loan suitable for the essential purpose. If you are unable to keep up with the EMIs (Equated Monthly Instalments) and unwillingly default on your debt, defaulting on repayment of debt is a dangerous situation with grave consequences.
What Does Debt Mean?
A debt or loan is an amount that you owe to a financial institution against the money borrowed from them, wherein you had entered into an agreement with them and had agreed to pay the loan through EMIs on or before the due date. The following are some types of loans that can be availed by you:
- Personal Loan
- Home Loan
- Business Loan
- Education Loan
- Loan Against Property
- Unsecured Term Loan
- Car Loan
- Credit Card Debts
What Does Defaulting on a Debt Means?
When you take a loan, you enter into an agreement with the lender that you will be repaying the loan through EMIs before the due date. But due to whatsoever reasons, if you are unable to make the payment on time, you receive an intimation from the lender that you have “x” days to repay the overdue amount along with penal charges. This period is also mentioned in the loan agreement. If you are still unable to pay the EMI within that period too, then you are said to have defaulted on your loan.
What Happens When You Default on Your Debt?
When you default on your loan repayment, whether willingly or unwillingly, the consequences are severe. Initially, lenders will try to put pressure on you to repay the overdue amount and then take up the services of collection agencies that will be following up with you for the repayment of dues. But if you are still unable to make the payment, then the consequences could be even more severe. The following are the various consequences that you might have to face in case of default on debt:
Impact on Credit Score
One of the significant implications of defaulting on your debts is the considerable impact on your credit score. When you are unable to repay you EMIs and end up defaulting on the loan, the lender will report the default to the credit rating agency,and your credit score plummets significantly.
It will jeopardise your future loan eligibility,and you will not be able to avail any loan in the near future. So, you must try to enter into an agreement with the lender and repay your overdue amount as per the agreement. This way you can repair your credit score slowly and save from defaulting on the loan.
The lenders will not be sitting idle if you have defaulted on your loan repayment. They will initiate the legal proceedings in the court against you and would build pressure on you to make the payment. As you have entered into a formal agreement with the lender, you cannot escape your liability and in such cases, court may pass any order in favour of the lender to enable him to recover his dues such as selling off your assets, creating lien against your property or even sentence you to time in jail. Proceedings could also be initiated against the guarantor for your loan.
Repossession of the Mortgaged Asset
If you had taken a secured loan, then you must have provided collateral against the loan. Collateral could be your car, house, gold, bonds or any other assets. If you have defaulted on your loan payments, the lender could pursue the matter in court to take the possession of the asset, so that it could be sold off to satisfy his debts.
Auction of Property
If you had taken a Home Loan or car loan and had defaulted on the payment of the loan, then the lender may initiate legal proceedings against you in the court and may get an order to take repossession of the property and arrange for the auction of the property. If there is a deficient sale, i.e., the amount realised from the auction of the house or car is less than the amount owed by you, you are still liable for the balance amount.
As you can understand the severity of the consequences of defaulting on your debt, you must try to avoid the situation under any circumstances. If possible enter into an agreement with your lender to get some more time for repayment of your Personal Loan or consider refinancing your debt. Remember when there is a will, there is a way.
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