Defaulting on loan repayments has serious costs. These consequences might interfere with your goals. When you take out a loan be sure to repay it. Always take a loan amount you are able to repay. Failure to pay your personal loan seems like the easy way out. But it could create troubles. This can haunt you for a rather long time.
Secured vs. Unsecured Loans
It’s possible to access both unsecured and secured loans. This loan types can be issued by moneylenders or banks. Personal loans will be considered secure when they have collateral. This will back the borrower’s promise. And unsecured is based on a borrower’s reputation and trust.
One example of the secured loan is the car or housing loan. In such cases, the collateral (your guarantee that you’ll repay this loan) is the house or car in question. Given that you are not capable of repaying the home loan. The lending company has the right to foreclose your house.
An additional type of the secured loan is Lombard lending. This loan type is often limited to well-off borrowers. For this kind of loans, the collateral may be of high value. An example is a vintage cars collection, wine or antiques. In case the borrowers don’t repay the loan. The licensed moneylender will take the collateral put up. Therefore, the effect of non-payment of secured loans is simple. The borrower will lose the collateral they put up for this loan.
There are serious consequences to non-payment on your loan. This is even when it’s unsecured loan. These consequences include:
- Legal proceedings
- Difficulties with employment
- Having no access to essential loans
- Having money being seized from your bank accounts
When a lender suspects a borrower has money. But they simply don’t intend to pay it back. When this happens, the lender will start legal proceedings. Following the contract, you signed for the loan or credit card. It means you legally are obligated to repay your debts. You usually will get your first legal warning. This is only when you haven’t made repayments in over 30 days. Nonetheless, legal action could take place earlier under some conditions. For instance, when the lender finds out that you plan to leave Singapore.
Difficulties With Securing Employment
Any previous incidences of defaults will show on the credit record. When you have your debt written off. Yet you didn’t try to settle it or even negotiate. The non-payment will remain on the report indefinitely. But, if you’ve made attempts to repay the debt. This you could be doing through credit counsellors. Then the partial defaults or defaults will be deleted from the report. This will be done after three years have elapsed.
Given that potential employers can’t access your credit records. But it’s possible they can ask you to see it. Several companies have strict policies against employing people in debts. Or even individuals who have defaulted on their loans.
Some hiring managers could consider this a sign of negligent behaviour. Some might decide that your economic woes can affect your work. Some industries, like finance, it can be hard to get a job. And especially when you have a low credit rating. Few individuals will trust any financial advisor who has a long list of defaults!
Having No Access To Essential Loans
When you don’t pay back any of your loans at all. It will be indicated in your credit history. By having a poor credit rating can affect you seriously. It will make hard to get essential loans. Some of these loans include home loan and the education loan. Thus you will be deprived of vital financial chances.
For instance, this might apply to individuals who can’t get home loans. They will often be compelled to rent. Thus this becomes a major waste of their money. This is because they are not able to have a house to rent out or even resell.
Individuals who can’t get education loans might struggle. This is especially when they are seeking better job opportunities. This also includes getting promotions. Thus though getting the debts are written off could be a good thing. However, the actual costs are hardly is worth it. And this is a short term.
Having Money Being Seized From Your Bank Accounts
However, it will be based on the lender in question. It also depends on conditions and terms involved. But in some situations, you may have money in a lending bank. It’s possible for the lender to take it. They will then use it to repay your debts.
Confirm the particulars of the contract before signing a loan. You could also look for loans with suitable terms and offers. This you can do by making use of comparison tools or customers’ reviews. But then again, when you have some extra cash lying around. Then it is a lot easier for you to simply make the repayments.
Many Singaporeans Take Unsecured Loans
It is not viable for a lender to ask secured loans in a small amount. These are amount s such as S$10,000 and S$20,000. True these maybe huge sums for an individual. However, the amounts are small when compared to big companies. These companies often deal in bigger amounts such as banks.
For the small loans, the banks will often use different loan products. It can be in form of personal credit lines, personal instalment loans, or credit cards. Thus it becomes convenient for borrowers to access. And it makes it easy to pay the amount back.
The personal loans are often not backed using any type of collateral. This loan is offered based on trust. The licensed moneylender only trusts the borrower to make repayments. The amount the borrower has to repay includes any interest. It can happen the borrower doesn’t make repayment.
In such a situation the moneylender may cancel it. That is eventually they would consider the debt a loss. Though an easy way out, the borrower will be in default. It may sound like heaven sent solution for a borrower. But you need to realize that it’s not.