How to Avoid Embarrassment after Defaulting on a Loan Repayment
“Mr A is a scammer who has duped many people of their money. Be careful when doing business with him, because he just duped us of #100,000 and has refused to pay.”
Looks familiar? This is the kind of message loan apps send to the contact list of individuals who default on a loan repayment, to defame the individual and get them to repay the loan. The tweet below is a testament to this.
This is the kind of consequence you can face when you default on a loan repayment, which is why it is advised to get loans from reputable loan companies like Triift Africa, and not loan sharks who are out to eat you up.
Defaulting on a loan means failing to repay the loan, by the due date agreed upon. It is usually considered a default after about 30 days after the due date, with no payment still being made. When this happens, you can expect calls from the lender, and they can take other steps to recover the loan.
In this article, we’ll examine the steps you can take after defaulting on a loan repayment to manage the situation and the possible consequences of defaulting on a loan repayment. Let’s get started.
4 Steps to take after defaulting on a loan repayment
Being unable to repay a loan at the agreed-upon time is not the end of the world, especially when you borrow from reputable companies that wouldn’t use demeaning means to retrieve their money. What matters now is what you do after realizing that, and here are 4 key steps to take to manage the situation well.
1. Assess your financial situation
The first thing is to assess your financial situation to understand why you defaulted on the loan, and what can be done to rectify the situation. To start, check your monthly budget and remove some non-essential expenses, to divert those funds for the loan repayment.
You can also decide to take on a part-time job or freelance to get extra income to repay the loan on time. Whatever you do, never take a loan to repay another loan, as that will only put you in a cycle of unending debts.
You should read: What to know before applying for a business loan
2. Reach out to the lender
The best time to explain your financial situation to a lender is before you default on the loan, the next best time is immediately after you miss the deadline.
So, reach out to your lender to apologize for missing the payment date and ask for a chance to create another repayment plan. This communicates integrity and that you are indeed sorry about the situation.
3. Create another repayment plan
Ask your lender about loan modifications, which could be to pause payments for a period, spread the loan repayment over a longer period, etc. based on the situation at hand. This is key to ensuring that there’s a plan on how to meet up with subsequent payments to prevent any default from occurring.
4. Seek professional counsel
You can also seek professional help from a credit counselor to help you negotiate better terms with your lender. They can guide you in reviewing your budget, create a repayment plan based on their knowledge and expertise on debt, and give you tips on how to improve your credit score after the default.
Most importantly, to avoid a recurrence of defaulting on loan repayment, only borrow loans you can afford to pay without hassle — which is a mistake you must avoid when applying for a loan.
5 Consequences of Defaulting on a Loan Repayment
Now, here are 5 possible consequences you can face when you default on a loan repayment. The last one will shock you.
1. It affects your future lending potential
Not paying your loan on time or at all has dire consequences as it can damage your credit score, thus, limiting your chance to borrow money in the future. Even in situations when you can access loans, you will not qualify for the best interest rates.
Also, you might not be able to access large amounts of loans, limiting you to only small amounts, based on data obtained from your credit history.
2. Getting reported to the credit bureau
I read on X (Twitter) the other day about how someone was denied a visa because he had been reported to the credit bureau to be owing a loan app. That is how devasting and far-reaching the consequences of not paying a loan are.
The Bureau of Credit was created to help credit providers make better lending decisions, and they have information on the credit profiles of companies and individuals. So, when you default on a loan or outrightly refuse to pay, you get reported to the Credit Bureau and automatically get blacklisted by them, which makes it difficult for you to access credit from credible lending companies.
Related: 5 Sources of Funding for Female Business Owners
3. Damage to your reputation
When you borrow money from unlicensed lenders or loan sharks and refuse to pay up, this is a consequence, you cannot avoid. In situations like this, especially when efforts to retrieve the loan have proved abortive, the lending company proceeds to send defamatory text messages, like what is written in the introduction of this article, to your contact list, in a bid to get you to pay.
Many individuals have seen their reputations torn to shreds overnight because of this. You surely don’t want to be in those shoes.
4. Loss of your collateral
In the case of secured loans, where you submit collateral that is equivalent to the amount you are borrowing, failure to pay back such loan or refusal to do so leads to forfeiting your collateral.
For individuals, who take large loans from traditional banks and use their houses, landed properties, etc as collateral, they can lose those properties if they default on paying the loan, except if an agreement is reached to save the situation.
Must Read: How to use WhatsApp Business to market your Small Business
5. Legal action can be taken against you
Yes, legal action can be taken against you when you default on paying a loan. In some situations, you can face asset seizure, a lawsuit, etc. and this has devastating consequences as it can lead you to spending more money and time to resolve the issue.
Get that load off your chest
Repaying loans at the due date will not only keep your reputation intact and enable you to access better credit next time, but it also gives you peace of mind knowing you are not owing anyone. So, if there’s a business loan pending that you need to pay, kindly speak with the lender to come up with a repayment plan that works for both of you, to get that load off your chest and maintain your integrity.
At Triift Africa, we give out collateral-free business loans to help you grow, and in a situation when you are finding it difficult to repay, we come up with a plan to enable you to do so, without hassle.
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