What Actually Happens When You Can’t Pay Back a Loan?

Paying back a loan with interest is the obvious requirement associated with being fronted the money. Not paying back a loan can have a number of consequences. The most obvious is a default on the loan is going to be marked on a credit score. A complete default is sure to drop a score down significantly. Paying late won’t exactly be overlooked. The length of time the payment was late gets noted as well. 30, 60, and 90 days late and so on would be logged. None of those notations help a credit score out, but paying late is better than defaulting.

With a secured loan, collateral ends up being seized. If a car or boat were put up for collateral, the lender would assume ownership. All this and a bad mark on a credit rating are sure to cause headaches.

Defaulting on a personal loan could bring forth even worse problems. The lender may file a lawsuit to recover the money lost on the default. The amount does not even need to be much for the lender to file suit if collection actions — another headache — fail. Small claims court is an option.

And do not expect many future potential lenders to take a risk with someone proven to default on obligations.

Image: Bigstockphoto.com / auremar