What happens when you default on a loan?

When people take loans, they do so because they believe that they have the financial capability to meet the repayment agreement. Be it via an expected income, paychecks, or through business revenues, people always have a pre-planned means to finance the clearance of their debt. Unfortunately, life isn’t always a bed of roses. And sometimes things don’t work out as planned. You probably intend to pay off all of your loans, but life can surprise you in a number of ways – a job change, health issue, or a disappointing event can quickly throw you off the track. So what happens in those worst-case-scenarios? Eventually, as your plans go south and the income stops flowing, you may “default” on your loans, and as such, it is important to know how that affects your, your credit report, and overall finances.

What happens when you default on a loan?

As expected, defaulting on a loan is not without consequences. From having legal troubles to the embarrassing sights of bailiffs knocking on your door, credit damage to inability to enjoy credit, additional charges to higher interests, lenders have no problem going the extra mile with you when you default on a loan. Not because they hate your face, but because they’re trying to squeeze out from you as much as they can recoup.

Credit and legal troubles

Once you start failing to meet the minimum agreed payments, the first thing that suffers is your credit score. Since lenders know that they cannot compel you to do the needful, they look for other ways to convince you. And nicking your credit score seems like a pretty good move to them. Although most creditors often give borrowers the benefit of the doubt, by leaving them in the clear for the first 30 days after payment is due, after this period of grace, they report you to the credit bureaus, who in-turn lowers your credit scores, as a way of dissuading other possible lenders from lending money to you. Beyond the financial benefit it deprives you of, lower scores also impact other areas of one’s life, like not being able to secure some jobs, having a hard time renting, and signing up for utilities.

If, after reducing your credit scores, you still don’t do the needful, lenders have no problem passing your name and details to bailiffs and collection agencies, like the Moorcroft collection agency. Aside from damaging your already-damaged credit history, collection agencies have a profound reputation of successfully making a borrower feel the heat of their debt burden. They call you incessantly, text you reminders, send you notices, and ultimately visit your home (embarrassing). And if after all that, they see that you still wouldn’t bulge, depending on the type of loan taken, they might resort to filing a court claim against you. But before it comes to that, you should try to get help, like the Moorcroft debt help, from anywhere possible.

Higher cost of debt

Like your existing debt cost isn’t hard enough for you to pay, lenders make matters worse by garnishing your overall debt with additional interests, late payments fees, and penalties.

What happens when you default on a loan? Type of loan

Unsurprisingly, different loan type calls for different measures in the event of a default.

Secured loans

When you default on a secured loan, your creditor might decide to take away the collateral from you and put it out for sale. This could be your home, car, or any other substantial asset.

Personal loans

Personal loans are usually not secured with collaterals, and since no collateral is involved, lenders don’t have anything to take from you. However, they can damage your credit report and try to collect by taking legal action against you.


When you default on a home loan, lenders might be able to force you out of the property through foreclosure and sell your home to collect the loan balance. But guess what’s even more intriguing with home loans? After selling your home and chasing you out, if the sale doesn’t cover the entire amount of debt you owe, you might still owe the difference and be forced to pay, depending on the laws of the state.

Auto loans

Similar to home loans, auto loans default also implies that your vehicle can be repossessed from you and sold. And since vehicles are known to be a depreciating asset, chances are it will be sold for far less than you owe, and as such, you’ll be expected to pay the loan balance.


The Yucatan Times