What if you can’t repay a loan? | Guides | Aro (2024)

FAQs

What happens if you can't repay a loan? ›

Defaulting on a loan is likely to lead to severe consequences, such as having your debt passed on to a collection agency, or you being taken to court. If you have a loan secured with a car or your home, then it could be repossessed to recover the costs.

You may be allowed more time to pay off your loan. Your lender may restructure the loan – Though they cannot change the personal loan interest rate, they may increase the loan tenure. In the worst-case scenario, you can request the lending institution for a settlement.

Steps such as freezing or reducing your loan repayments may be possible, depending on your situation and lender. To consider any of these options, you'll first need to contact your loan provider and let it know that you're struggling to make your repayments.

Lenders don't have legal jurisdiction to arrest you for an overdue balance. However, defaulting on a loan will have serious financial implications.

Extended Loan Term:

Most lenders will restrict how often you can skip a loan payment to prevent it from negatively affecting your loan. Typically, you can skip a payment once every six to twelve months. However, assume you have a 6-year (72-month) auto loan, and you skip a payment every six months.

This letter is to let you know that I'm currently having some financial difficulties. I'm not able to pay the complete monthly payment on my account because _____________________________________________. (List your personal reason here – job loss, illness, etc.)

Fortunately, the Fair Debt Collection Practices Act (FDCPA) makes it illegal for debt collectors to threaten you with jail time if you cannot pay your debts.

What happens if you get a loan and don't use it? ›

If you decide that you don't want or need a loan once you have received the funds, you have two options: Take the financial hit and repay the loan, along with origination fees and prepayment penalty. Use the money for another purpose, but faithfully make each monthly payment until the loan is paid in full.

Going to court and having your wages garnished.

In certain situations, if a debt collector (or the original lender) is unable to get you to pay at least a portion of what you owe, there's a very good chance that they may seek a legal remedy. They may take you to court and seek a garnishment on your wages.

In fact, it's rare for any types of debt (other than federal student loans) to be forgiven. Under certain circ*mstances, you may be able to settle your personal loans for less than you owe, but this is typically only done in the case of delinquent loans and happens through third-party debt settlement companies.

Evaluate your income, expenses, and other financial obligations to create a realistic repayment plan. Communicate with the lender: Reach out to your lender and explain your situation. Discuss possible options for repayment, such as restructuring the loan or negotiating a new payment plan.

After 30 days, your lender will likely report the missed payment to the credit bureaus, and you'll begin to see a negative impact on your credit score. If multiple payments are more than 30 days late, each one will be reported to the credit bureaus as a separate occurrence.

While debt collectors can no longer have you jailed or threaten to have you arrested for not paying your debts, there are a few instances in which you can be incarcerated with debt as the underlying cause. For example, a debt collector can sue you and, if you fail to comply with court orders, you could get jail time.

-Your credit score will be damaged. -You may have difficulty qualifying for credit cards, car loans, or mortgages, and will be charged much higher interest rates. -You may have difficulty signing up for utilities, getting car or home owner's insurance, or getting a cell phone plan.

What happens if you can't repay a debt? The consequences of not repaying a debt vary, from late payments to increased loan rates to having to deal with a debt collector. For the most part, it depends on how many minimum payments you've missed, and if you're consistently missing your monthly repayment plan.