Being that there is no collateral securing an unsecured loan, these loan types are deemed as high risk. The consequences for not practicing strong account management and not paying your monthly loan obligation timely and in full, or even worse defaulting on your loan, are severe. More severe than not paying a secured loan; auto loan or mortgage.
Monetary Consequences
Being late just thirty days will like equate to an increased interest rate. Fees will continue to rise every additional 30 days of being late. No matter if you catch up and begin making your payments timely, once you are late and have increased interest rates imposed, those rates stay for the duration of your loan.
Loan defaulting will likely equate to your loan being sent to collections. And then you will likely be ordered to pay the total amount plus interest at once, regardless of the term left on your loan.
Credit Impact
Around thirty days from the time you don't pay your loan, in addition to the mentioned increased interest rate, you will notice a decline in your credit rating. And at the conclusion of 60-90 days of non-payment, one can anticipate not only for their credit to drop more, but even worse, for that debt to be labeled as defaulted and be handed over to collections. No matter if you've exhibited positive account activity for years, and even only have a few hundred dollars left on your loan, the credit impact of defaulting is the same as if your loan is new and you owe thousands.
If you default on your loan, your credit will be several impacted. It is important that you reach out to your lender and let them know if you are unable to make payments. They may be able to work with you.
Lawsuit Because of Defaulting
You can also be sued by a lender in the event that you owe significant money. A judge will then decide if you have a legitimate reason for not being able to make payments and defaulting; becoming unemployed, illness, or any other reason for not being able to work. If you have no hardship explanation for defaulting, you will most probably have a decision against and be mandated to pay the entire loan amount back. It is also possible that a negative ruling will also include that your salary is garnished for settling the debt owed.
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Representative Personal Loan Example: For a $5,000 36-month loan at an interest rate of 6.03% with a 1.11% origination fee of $55.50, you will receive a loan amount of $4,944.50 and will make 36 monthly payments of about $152.18 at a 6.78% APR. Total loan cost would be $5,478.48.