A person defaults on a loan when he/she fails to meet their payment obligations as stated in the terms of repayment. This can be failure to pay on time, missing one payment installment or completely refraining from making any repayments. Such defaults have many negative effects to the borrower including being subjected to some recollection procedure and severe damages to one’s credit score making it difficult to access any loans in future.
Defaulting on Cash Loans
Cash loans are given on a short term and mostly targets people with bad credit. Their due date for repayment is usually the next time the borrower earns, their payday, say two weeks or end of the month. Unlike standard loans, cash loans do not require collateral and are therefore among the most easily defaulted loans. If at the end of the time specified the borrower doesn’t have money to repay, some tough actions may be taken by the lender. Most lenders resort to turning the loan over to a collection company, who will be tougher and less empathetic than the lender while trying to recollect the money. The better option is Longer Term Loans because the payments are lower and the interest rate is generally lower. Just after missing the first payment, a loan is considered defaulted and can be turned over to a collection company. Some lenders will try to work out a plan with the borrower before turning the account to the collection agency. Other companies may be lenient enough to offer an extension till the next pay day. If and when the loan is transferred to the collection agency, the borrower may still talk to them in order to make some arrangements on how to pay the loan.
Cash loan lenders in most states have a legal right to sue for their money in case of a default. They can be allowed by the court to retrieve their payments from the defaulter’s wages or salary. If at all possible it’s better to get a bad credit personal loan option because the rate is lower and it really helps to build/rebuild your credit rating. With the other option, the borrower’s credit score will also be tarnished when they default on a payday loan. Unless the loan is paid off, it makes it hard for him/her to receive any such loans in future.
Defaulting on a Bad Credit Car Loan
Special finance companies usually agree to make a lump sum payment for a car purchase on behalf of the individual (borrower) who then becomes liable to make certain payments over a period of time. Sometimes people default for different reasons. The lending company goes ahead and reports the money in arrears which becomes a credit history for the borrower. It becomes a factor in calculating the credit scores of the individual.
There are many options to help you get a loan for an automobile and many offer personal loans or other programs designed to help you obtain the money. In many situations you can apply online for loans and be approved within seconds/hours. There are a lot of online options for people needing money.
The consequences do not stop there, the person may end up losing the automobile. The car or whichever automobile, is seized by the lender. The title was the collateral in case the loan is defaulted and so nonpayment of the agreed amount basically means the title ownership of the automobile has been forfeited. This will usually happen within a number of days after the due day or sometimes just within hours.
All lenders have their own polices and processes available in writing that states what happens to the car in case a loan repayment is defaulted. Different lenders work with different policies, some will seize the car immediately after nonpayment while and store it as they make plans to resell it and take the proceeds to the financier. Others will try to empathize and offer a grace period during which the borrower can attempt to pay the money before the car is sold. Even in the latter case, if the borrower manages to get the money before the car is resold, he/she will still be liable to some penalties and storage fees before reclaiming ownership.
If it happens that the car is resold, the borrower may find it a much bigger problem since the proceeds may not cover the whole amount. The borrower may still owe the lender some additional amount. The lender could decide to sue and even worse garnish the wages of the borrower so that the whole amount is regained. If the automobile is sold for more proceeds than the cost of the loan, the borrower may also be ineligible to receive the excess cash.
In case one feels they cannot make the payments, it is important to take action immediately and try to resolve the issue with the lender rather than ignore the problem. The financial implications of defaulting on a loan can be pretty bad, the best one can do is try saving the situation early enough and avoid getting to the worst case scenarios.