When you fail to pay off the borrowed amount even after a certain period of time, the lender will report your loan account as a non-performing asset NPA to the credit bureaus. This will severely affect your credit history and bring down your credit score as well. In addition to this, you will find it very difficult to get a credit card, personal loan, home loan, or any other kind of loan from any banks or financial institutions in the future. Hence, it is advisable that you try all means possible to pay off your loan.
Getting a loan is an act of responsibility as it involves repaying the same on time. However, if the borrower is unable to repay the loan, the lending institution initiates a loan recovery process. While the steps slightly vary from one lender to another, it will either involve relaxing certain conditions to ensure easier repayment for the borrower or legal action. Therefore, avail a loan only if it is possible to repay the same on time and an amount that can be repaid.
Missing payments or failing to repay the full amount required each month for three to six months is known as defaulting. Your missed payments and default notice will be recorded on your credit report which could affect your credit score and make it harder for you to access financial products in the future. This is a type of court order in England, Wales and Northern Ireland. You will be given a month to pay back the amount owed, but if you are unable to, the judgment will be added to your credit report and remain there for six years.
An IVA is a formal and legally binding agreement between you and your creditors to repay your debts over a set period of time. Failing that, you may have to declare yourself bankrupt, but this can have serious consequences so needs to be considered carefully. If your loan is secured against your home or car and you continually miss payments, you could be forced to sell your property or vehicle to repay what you owe.
If you think you are likely to miss a loan repayment, speak to your lender straightaway and explain the situation. Your lender may be able to come to an arrangement with you to help pay off your debt before taking any further action.
Your lender may also suggest consolidating your debt, which will enable you to combine all of your debts into a single monthly payment with one lender. One way to do this is to take out a debt consolidation loan.
These include:. Failure to pay your council tax, fines or TV licence could ultimately lead to a prison sentence, not paying your utility bills could result in your energy supply being disconnected, and failure to keep up with mortgage or rent repayments could see you lose the roof over your head. A good way to help you manage this is to draw up a monthly budget, assess where you can make cutbacks and set aside a certain amount for each payment, putting your priority debts first.
This can affect your ability to borrow in the future. The amount of damage done by missing a payment depends on how long it takes you to get back on track. Your credit record shows your repayment history for all your borrowing. The different types of notices that could appear on your credit file include:. A default notice is a formal letter from your lender. It sets out the details of your loan, what terms you've broken and what you need to do next. A default notice is added to your credit report.
This can make it harder to borrow money in the future. A CCJ stands for county court judgment. A CCJ causes significant damage to your credit record. It could make it much more expensive to borrow money, or even prevent you from borrowing money in the future. In Scotland the courts use a different process called enforcing a debt by due diligence.
You could use an IVA or declare yourself bankrupt if you have no way to repay your debts. An IVA is where you and your loan provider or providers come to a formal agreement to freeze interest and help reduce the amount owed. It can be a helpful way to fix your monthly payments at a more affordable level. It does affect your credit score but not as badly or publicly as bankruptcy. Declaring yourself bankrupt would wipe out all your debts. This may sound too good to be true, but it has hugely detrimental effects on your credit file.
A bankruptcy on your credit file will make it almost impossible to get credit in the future. Your credit record dates back six years. So even if you're back on track financially, your history will count against you.
Although you can pay in instalments, it will all need to be paid before you submit your application. It is also announced publicly so may have a stigma attached to it. Get professional advice before considering either an IVA or bankruptcy. You can seek free, independent advice from debt charities like StepChange or Citizens Advice. You could lose your possessions, but it largely depends on the type of loan you have. For secured loans, like a mortgage, the lender can take and sell your possessions.
If you've used your home as security, the lender will need a court order to repossess it. This way the borrower gets the money in the time of need, and the lender earns extra on the original amount through interest. For all the borrowers, the lending institution sends their repayment records to CIBIL to and other credit rating institutions.
As soon as the borrower defaults or delays his EMI, it is reported and as a result credit score comes down by some percentage. This also has a negative impact on future borrowing capacity. All borrowers are provided with the opportunity and have the right to approach the bank if there is any difficulty in repaying the installments and to choose an option to restructure their debt to enable a smooth repayment process. There is a laid down code of conduct which banks need to adhere to.
Not adhering to the reminders sets off a chain of events that usually starts with the bank taking to a legal notice issued to the borrower.
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