QandAs: Loans

What are the Consequences of Defaulting on a Personal Loan?

Answer:
The best thing to do if you’re unable to make

payments on a personal loan is to contact your lender. Your lender will be able to suggest options that may be available to you such as refinancing your loan, skipping a payment, paying only the interest for a period, or making partial payments.

If you do default on a personal loan, and you haven’t contacted your lender, they’ll first attempt to collect the debt from you. If you lender is unable to collect the debt, they may turn your account over to an outside collection agency. If your loan was unsecured, your lender may take you to small claims court and your wages could be garnished. If your loan was secured, you could lose your property. (If there is a co-signer on the loan, they will become responsible for the debt.) Your payment history, or lack thereof, will be recorded in your credit file, which affects your credit score – limiting your future borrowing possibilities.