While most credit card companies allow one late payment before penalizing card holders, missing multiple bills can ding a credit score payday loans in South Carolina by as much as 125 points. Additionally, card companies can add a late fee of $35 to $40, as well as apply a penalty interest rate-which will make the cost of the outstanding debt much higher. Once a credit card debt defaults, it will trigger an aggressive debt collection process, during which borrowers are contacted frequently by collection agencies. However, while it is possible for collectors to sue and win a wage garnishment, it’s more likely that they’ll be willing to negotiate a partial debt repayment.
While this period gives debtors a sufficient amount of time to straighten out their finances, it can also be a time when the debt, if left unpaid, rapidly accrues interest. For debtors looking to avoid this situation, a good option is to take out a personal loan to consolidate your outstanding debt . These types of personal loans allow for fixed monthly payments and generally have lower interest rates than credit cards.
Mortgages are secured with the purchased home as collateral, meaning that the home can be seized if the loan isn’t paid back according to the initial agreement. For most homeowners, this means that defaulting on a mortgage will lead to foreclosure. While this is a drastic consequence, foreclosure can be avoided by figuring out how to refinance your mortgage to make it more affordable. Eligible homeowners might consider the Home Affordable Refinance program, or HARP, which is designed to help underwater borrowers.
Above all, making your payments on time can help you avoid default. Like with other loans, it’s important to communicate with your loan servicer if you think you can’t make your mortgage payment. If you’ve made payments on time in the past and can prove your current financial distress, you may be able to negotiate for a restructured loan agreement.
When an auto loan defaults, the lender or car dealer is usually able to seize or repossess the car to pay for the outstanding debt. However, repossession is a last resort move for most auto lenders. Because the value of a car depreciates over time, it’s likely that the current value of a repossessed car isn’t enough to cover the outstanding balance of a defaulted loan. Repossessed cars also have to be resold for the lender to get any cash-and as such, lenders prefer to get money directly from their borrower rather than seize collateral. So most of the time, they’re willing to work with borrowers to restructure the terms of an auto loan.
Other Types of Loans
For personal loans and business loans, the consequences of default vary depending on whether the loan is secured or unsecured. With business loans, defaulting can often times have a negative impact on the business owner’s credit score if the loan was backed by a personal guarantee. Defaulting on a personal loan will also make it much harder to receive credit in the future. However, as outlined in the sections above, these defaults can be avoided by proactively communicating with your lender to negotiate for a restructured loan.
- For secured personal loans, default will usually result in the collateral asset being seized by the lender
- For secured business loans, default will usually result in lenders seizing revenue or inventory
- For unsecured personal loans, default will often result in wage garnishment
- For unsecured business loans, lenders can litigate to receive a lien against a company’s earnings