A personal loan is an unsecured loan which means that there is no collateral that can be used as security in the event that you default in the loan. A default occurs when you miss one or more monthly repayments or are no longer able to repay the loan.
Unlike a secured loan where the collateral or a security deposit will be used to cover the loan, a personal loan does not have any security to fall back on. This does not, however, mean that there aren’t any consequences for defaulting. Some of the most common repercussions of non-payment of an unsecured, personal loan include:
You will be charged interest on the amount that is outstanding on the loan. If you have missed a payment, you will pay higher interest. A loan provider may also increase your interest rate due to a default, even if payment was made only a few days late. Interest will continue to be charged on the outstanding amount and will continue to accrue within the defined legal limits for personal small to medium loans.
2. Late Fees
Most financial institutions will charge a late fee. This fee may be applicable even if the repayment is only a few days late although some loan providers do offer a grace period of 30 days before instituting late fees.
3. Law Suit
If your loan remains in default for a period of between 30 and 90 days, you will probably start receiving calls and letters from the loan provider’s debt collection department requesting payment and informing you that your account will be handed over to lawyers should payment not be made by a specific date. The lawyers will contact you in an effort to make arrangement for payment.
If payment still is not made, they will send you a final letter of demand after which they will take you to court and sue you for the outstanding amount including interest and late fees. You may also be held liable or responsible for paying the lawyers fees.
4. Debt Collection
Some loan providers may hand your debt over to a debt collection agency before taking the legal route. This means that you no longer owe the loan provider but the debt collector who has basically bought your debt. These debt collectors can go to extreme lengths to recover their money and may even take possession of goods or assets that can be sold to cover the amount.
Late and non-payment of a personal loan will reflect negatively on your credit rating or score. If the debt remains in default for a period of more than 90 days, it may result in blacklisting. This can affect your ability to apply for credit or a loan in the future, to get a job or even rent a property.
You should always contact your loan provider if you are going to pay late or if you cannot afford the monthly repayments. It is always best to come to an arrangement to repay the loan on more affordable terms and conditions than it is to suffer the consequences of going into default.
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Visit our application page and see if you qualify today.
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