Nearly 75% of Americans admit to having credit card debt. It’s clear that many people struggle with their finances.
The solution isn’t necessarily to avoid borrowing money entirely, so you might be asking “What happens if I don’t pay back a personal loan?” and “How does a personal loan work?”.
If you find yourself struggling to pay back your loan and it starts to negatively affect your credit score, it can be a good idea to seek legal help. Read on to learn how to pay back a personal loan on time.
What Happens if I Don’t Pay Back a Personal Loan?
The personal loan may be provided by a family member, friend, or financial institution, and if you don’t pay back personal loan, the lender may suffer financial hardship and they may take the following actions:
Report to Credit Bureaus
The lender will likely report the missed payments to the credit bureaus. This can hurt your credit score and make it harder to get approved for future loans.
Pursue Legal Action
The lender may also pursue legal action to recover the money you owe. If the lender takes you to court and you’re found liable, you may have to pay the full amount of the loan, plus interest and fees. You may also be responsible for court costs and legal fees.
Turn the Debt Over to a Collection Agency
The lender may also turn the debt over to a collection agency, which will add additional fees. If you’re unable to repay the loan, you may end up having to declare bankruptcy.
Garnish Your Wages or Seize Your Assets
In some cases, the lender may be able to garnish your wages or seize your assets which may even result in jail time. If you’re considering taking out a loan, make sure you understand the personal loan rates they offer.
What to Do if You Can’t Afford to Pay Back a Personal Loan
If you can’t afford to pay back a personal loan, you may want to try to negotiate with the lender. You could offer to pay a lower amount, or set up a payment plan.
In addition, consider talking to a financial advisor if you’re not sure whether you can afford a personal loan. There may be programs available that can help you get back on track.
You may also opt to get quick loans direct to pay off the loan, but make sure you’re able to pay as this could further damage your credit score and make it more difficult to get future loans.
Minimize the Risks of Not Paying Back a Personal Loan
If you’re wondering, “What happens if I don’t pay back a personal loan”? The answer is the lender may take legal action against you which will damage your credit score.
To avoid these risks, make sure you understand the terms of your loan and can make the payments.
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