Taking out installment loans is a good way of getting funding for emergencies or even for your projects. However, failing to repay the loan on time has consequences such as late repayment penalties. Lenders will share the repercussions of defaulting on installment loans when signing the credit agreement. So what happens when you default on a loan? Keep reading the article for more details.
What Will Happen If I Can't Pay Back Installment Loans On Time?
Before approving your installment loan application, lenders review your financial information and credit history to gauge your ability to repay the loan. If you don't pay the loans on time, you may end up facing the following consequences;
Late payment penalties
Typically, lenders will give you a grace period of about 5-10 days after the loan repayment date, within which you can make your deposits without being penalized. However, you will be charged a late payment fee if you make payments past the set dates. The penalty may vary from one lender to the other and also depends on the loan amount. Most lenders indicate the late payment percentage in your loan agreement.
Hurts your credit score
Credit scores are critical when taking out loans. Late loan repayments may damage these credit scores making it hard for you to get good credit deals. Usually, lenders report loan payments monthly; if you're late by 30 days, your credit score will be negatively affected.
Defaulting on the loan
It gets worse when you fail to make loan payments for a certain period; it could be 3 months or less, depending on your lender's default terms. After this period, you will be declared a loan defaulter, which is very dangerous for your credit history and credit scores. Lenders will then forward details to debt collectors.
The debt collector will be on your neck.
Lenders seek debt collection services to help them recover their money from you. The debt collectors will contact you and persuade you to repay the installment loan. However, some debt collectors are rogue. Understand your rights to know how to deal with them. You can still negotiate with the debt collectors to find a way of repaying the loan before it's too late.
Lenders can sue you
It's an offense to default on installment loans. Thus, a debt collector or lender may seek legal redress when you fail to repay the loan.
Conclusion
Having a proper plan to repay installment loans on time is always good. The long-term consequences of defaulting on installment loans could negatively affect your entire financial life. However, if situations don't allow you to repay the loans, reach out to the lender on time for guidance. Some lenders will be willing to reschedule your loan repayments.