what happens if you don’t pay a loan back

what happens if you don't pay a loan back

Defaulting on your monthly payment is equivalent to committing a crime in the USA. The moment you default on any of your monthly EMI’s or utility bills, your account is more likely to end up with debt collection agency. The debt collection agencies are third party companies hired by the banks or creditors to collect the due amount. Even though your intentions are correct, yet some people are not comfortable paying their dues to the debt collection agencies because there is no immediate benefit for clearing your debt. So, if you are not compelled to pay off your debts, then bear in mind that you may have to face certain consequences: –

Credit Rating impacted – The debt collection agencies are directly related to the credit bureaus and report every unpaid debt. In the US, maintaining your credit score is very important because on that basis only, you can demand loans or credits from a financial institution. The credit bureaus can easily drop your credit ratings if the loan or liability is not paid timely. If you are ready to pay as well after the due date, you would have to bear late payment charges as well, which would be an additional amount of your total due amount. So, by the time you realize that you need to pay your due amount; the credit rating would already be damaged.

No further loans approved – Neglecting your liabilities is a serious crime in the US. It is a sign to other creditors that you are not faithful to your monetary commitments. Lending money to you is risky, and you might not pay your debts timely like previously. Hence, whenever you request for further credits from banks or any financial institution, your application would be rejected because of your bad credit score.

Repeated calls from collection agency – You might not like it, but it is their job to call you every day to remind you of your debt and get it paid. There are agencies that pay their debt collection agents only if they are able to get the dues cleared from the debtor. So, be ready to receive repeated phone calls and reminder letters from your debt collection agency until you clear your debt completely. Once you have cleared your due amount, you can ask them to stop calling you.

Pay higher rate of interest on new credits – There are times when you are genuinely unable to pay your loans due to financial troubles. Whenever you clear your liabilities, credit score would not be the same as it used to be, but it definitely would be improved. Next time when you apply for new credits, borrowers are still not convinced to give you credit. Even if they are approved, they might charge you a higher rate of interest on your loans. In some cases, you might also have to give something as collateral to get credits.

Legal action can be taken against you – Usually, people think that they can easily get away for defaulting payments. People don’t realize that debts not paid timely even after repeated reminders can end up in legal procedures. Creditors can take legal action against you, and you can end up in jail for not clearing your debts. Therefore, never take legal summons lightly. Make sure that you respond to all legal letters, and if your problem is genuine, you can even hire a lawyer to help you with your case.

Problems in getting jobs – Though your credit history has nothing to do with your ability to work, yet there are many companies that check credit ratings of a prospective employee before hiring. A ding on your credit report can make things harder for you, and you might not be able to secure a job for a long period of time.

Wait for seven years to get your credit fall off – Like mentioned before, collection on your account hamper your credit ratings. Even if you are a genuine borrower and due to unavoidable circumstances, you were unable to pay off your loans, creditors would not understand that. For them, you are a borrower that does not keep your payment promises. Whether you pay your debt or not, your credit ratings would remain the same for a certain time limit. Once the time limit is completed, the collection would drop off your account. Though the debt amount would not show on your account, you are still liable to pay that amount and collection agencies can still come after you.

So, if you have faced any collection on our account, it is always recommended to pay it back. A paid debt is still better than the unpaid ones.