When you make an agreement with someone, you make a promise. If you do not fulfill that promise, it is called defaulting on your promise. A loan is the same type of agreement. If you do not repay your loan, you are defaulting on that said debt. People who have problems repaying their loans are often in default status, and it can have a serious impact on their financial future.
What Is Defaulting A Loan?
You are probably here because you defaulted on a loan. Defaulting on a loan is a legal term that means you are not paying back the loan. You are breaking a contract that you made with the person or institution that loaned you the money.
When you default on a loan, you fail to make payments on your loan according to the terms of your loan agreement. Loans include mortgage loans, student loans, auto loans, and credit card debt. Defaulting may eventually lead to foreclosure or repossession for a home loan or wage garnishment for a student loan.
You may also lose your credit rating, making it challenging to get another loan in the future. It is possible that you will be sued by the lender for the full amount of your debt, plus interest and possibly attorneys’ fees.
What Happens When You Default A Loan?
Defaulting on a loan can be a big mistake. It ruins your credit rating, which is the key ingredient in getting approved for just about anything, from a mortgage to a car loan to a credit card. When you default on a loan, the lending institution automatically sends what is known as a default notice. The notice informs you that you must pay what you owe by a certain date. If you don’t pay, your loan will be turned over to a collection agency.
If you still don’t pay (and you probably won’t), the agency will be authorized to take any and all legal steps to make you pay the money you owe. That could mean garnishing your wages or putting a lien on your house.
It Harms Your Credit
When it comes to managing your credit score, there’s a lot you need to know to live a happy and debt-free life. One thing many people don’t know is that failing to pay back a loan or credit card can actually hurt your credit score. (Many people assume that this isn’t the case.) Lenders consider late or missed payments a sign that you will fail to pay them back, and the fact that you have borrowed money indicates that you are likely to go into debt.
When you default on a loan, it can wreak havoc with your credit score. This is because the bank or lender will report your default to one or all three credit bureaus, Experian, TransUnion, and Equifax. This is a very serious action, and the credit bureaus may decide to list the loan as a default on your credit report for seven years.
It Increases Your Debt
Many people have been tempted to stop paying their loans, especially when the economy is down and paychecks are tight. However, it is important to understand that defaulting on a loan can increase your debt in several ways. You can have your wages garnished and be sued for the amount of the loan. The loan company will often add late fees and collection costs to the amount owed. This can quickly make the loan far more expensive than you originally realized.
When you take out a loan, you are entering into a legal agreement with the lender, which means that failing to pay back your loan can have serious consequences. For starters, you will no longer be on the good side of the law since you will be found to have violated your legal obligations. And, since the lender can take your wages or your bank account, the lender can easily get you in trouble with the law by going to court to have a judgment against you.
Depending on your state and the lender (the person you borrowed from), you could be facing anywhere from a simple fine to a full-fledged criminal investigation. You will be in trouble with the law, and there is no way to get around that.