What happens if you do not pay back a loan?

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What happens if you do not pay back a loan?

By Editorial Team | 22nd January 2019
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Before settling on borrowing a short term or payday loan, it’s important to have in mind the consequences of failure to repay the loan. Payday loans, for instance, offer an option where there are no others. The request process for a cash advance loan takes a few minutes regardless of your credit score.

Below discussed are some of the challenges you are likely to face in the event of defaulting on a loan repayment.

Difficulties in securing employment

Failure to settle your loans and late payments negatively impacts your credit score ratings. Today, a significant percentage of employers check the credit report of potential employees to confirm their financial responsibility. Some companies’ policies are against employing staff in debt.

The National Association of Professional Background Screeners (NAPBS) conducted a nationwide survey of 1,528 HR professionals in 2016 to gauge their views on background screening.  25% of them admitted to conducting a background check before hiring in the top slots, while 6% admitted to conducting one on every applicant.

Plus, taking out a payday loan from places such as Advance America and Cash Central can be useful, but if it damages your employment prospects due to you defaulting on repayments, take careful consideration before taking out such a loan.

Increased penalties

Short-term loan lenders, such as Bad Credit Loans or CashAdvance, may impose some charges for late payments where the borrower will find a fee levied on their missed payments. These charges increase after every 30 days of late payment. If the borrower defaults on the debts, he/she will be responsible for repaying the loan, interest, and the missed fees for the entire loan period. Talking with these lenders will always be beneficial if you want consequences reduced.

Piggy bank on calculator concept for saving, accounting, banking and business account
Increased penalties can occur if you struggle with loan repayments (Picture: iStock by Getty)
Debt pressure

It’s evident that some money lenders pay little attention to the credit score rating of the borrower, a situation which makes it easier for the borrower to ask for more loans. With a mountain of owed money weighing on their mind, some may go to the extent of borrowing more from other credit bureaus to pay other loans. This vicious circle of debts is likely to subject the borrower to more pressure.

Having money deducted from your account

If you are banking with a specific financial institution, yet you can’t repay your payday loan, they may decide to seize the amount owed from your account. Take the time to check the lender’s terms before settling for easy loans. Remember, you can always compare the offers by different lenders to get the best terms possible

Disqualification from other loans

The fact that you can’t repay short term loans may disqualify you from accessing other crucial loans such as mortgages. Such debt lowers your credit score rating which is a vital factor while borrowing from banks.

Persistent debts impact negatively on your credit reputation such that no lender or individual would trust you with their finances. If you have to borrow, then you must be able to pay it back.

Dealing with debt collectors

A loan default exposes the borrower to debt collectors. Debt collectors may call you several times a day. However, collectors are not supposed to call you back-to-back in an attempt to get through to you. The collectors may also sell some of your estate to recover the amount you owe their client.

A man in a gray T-shirt holds dollars in his hands. Bank. Casino. Salary. Rates.
Managing your money reduces the chances of debt collectors seizing your cash (Picture: iStock by Getty)
Becoming subject to legal proceedings

If your lender is aware that you have the money and you do not want to settle your debt, they may initiate a constitutional procedure based on the contract that you signed while acquiring the loan. Typically, you will receive a first warning asking you to repay the debt within the next 30 days; otherwise, the payday lender will sue you to recover it. If you do not dispute the lawsuit, the judge could legally order wage garnishment against you.

After the order, your employer will deduct a percentage of your wages to settle the loan. Sometimes, your bank gets a garnishment order to hold the amount you owe the debt collector depending on the state’s procedure. On the other hand, if the judge determines that the borrower had a legitimate reason to default the payment (for instance; sickness,) leniency like more loan repayment time is given.


Instead of getting yourself into any of the above scenarios, it’s advisable to borrow what you can afford paying. Borrowers should also take their time to research lenders offering loans with favorable conditions. Understanding loan terms before acquiring one puts you in a better place for future loans, frees you from hassle by debt collectors, saves your account from experiencing wage garnishment and, above all, enhances your financial freedom.

Written by
Editorial Team
Our Editorial Team is constantly watching for new and exciting services to report on. They aim to bring balanced, honest reviews to the site to give you the best comparisons and ensure you have the knowledge to choose the product right for you. Read more.
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