What Happens If You Don't Pay Back a Personal Loan

What Happens If You Don’t Pay Back a Personal Loan

No one is an island, the wise men said. We all need help, especially when it comes to financial matters. There are so many reasons why you may find yourself in a financial need. For instance, you may want to finance the operations of your business before your invoices are settled. You cannot compromise the operations of your business because you do not have cash at the moment. Borrow and repay once the invoices are cleared. Still, you may have to finance your child’s college education or repair a home appliance. There are just so many reasons why it may become absolutely necessary to borrow money from banks or payday loans in Singapore.

But again, no one is immune to the things in this current economic era that can shake our financial abilities to respect our financial obligations. Life has a lot of turns, some come with positive surprises, and others bring negative ones. An unforeseen financial challenge might come in different ways. It could be in the form of loss of a job, demotion, pay cut, significant medical needs, or any catastrophic event.

When such an incident happens, our budgets may be messed up if not totally ruined, and our capacity to pay our bills and obey all our financial obligations may be compromised. Has it happened to you? What do you do in case your condition has changed ever since you were approved for a loan and you can no longer afford to repay? This is the worst situation you can ever find yourself in. In this blog, we are going to discuss what happens in case you don’t pay back a personal loan. In the end, we will see the solutions you can explore. Let us begin.

What Happens If You Fail to Repay a Personal Loan?

As we mentioned earlier, it may be impossible to anticipate a financial setback. Usually, banks and moneylenders have a precise mechanism to determine the credibility of borrowers before approving applications. Once you have been a loan, the lender believes you will be able to repay. Since they are supposed to regain the loan amount and profit, lenders will always be after you in case you fail to repay. Even though we hope this doesn’t happen to you, the following things are likely to happen.

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Your credit score will be damaged significantly

If you fail to repay a loan, your credit score will be damaged. Generally, lenders report the payments you make the credit bureaus. An unpaid loan will be reflected in your credit history. Besides, among the variables used to calculate credit score is how you repay the loan. Your score can significantly drop, and this means you will have problems securing other loans in the future.

The lender may file a lawsuit against you

A loan is usually a contract between you and the bank in which you promise to repay within an agreed period. The contract is binding once you append your signature to it. Failure to pay is a breach of contract, and the lender is at liberty to sue you. Other legal routes may be taken by the bank, such as freezing your saving account, though this option works if the account is with the same bank.


You will start receiving follow-up calls from the time you missed the first payment. You may also receive letters and emails from the lender. The information given may include the overdue amount, interest, and the late charges. The debtor recovery agents will keep visiting your home or working place. In some cases, the immediate family members of the defaulters have been harassed. Though it is illegal, you can expect the same treatment. In fact, there was a guarantor, the lender may approach the guarantor requesting the repayment of the loan. If the loan is secured, you will lose the asset used as security. The lender will have the option of seizing the asset and sell it to regain the loan amount.

The consequences of not paying a loan can be so devastating. Try your best not to find yourself in such a situation. Before sending an application, have an honest assessment of yourself. If you feel for some reasons you may not be able to repay, do not apply. But as we mentioned at the outset, no one is immune to unforeseen occurrences that may interfere with the ability to meet all our financial obligations.

What to Do

Now let us assume the worst of the worst has happened, and now you cannot pay back the loan. What can you do? Well, though this is a complicated situation, doing the following can help.

Talk to the lender

It is an excellent behavior always to maintain good communication with the lender. However, this can be very helpful in case you are unable to repay a loan. Why? Because lenders are human beings and they can understand the situation you are in, provided you are honest with them. So whenever you anticipate the possibility of not affording to pay back the loan, talk to the lender in advance. Be realistic about your situation, and you will lessen the action that may have been taken against you. Do not think hiding can help. Show up and the repayment period may even be extended.

Seek financial help

Think of where you can get additional money to pay off the loan. You can work overtime or look for a part-time job. Still, you talk to friends and family members. Your loved ones can help in this regard. You can also seek help from money management organizations.

Consider debt consolidation

You can apply for a consolidation loan to repay the debt before it is too late. Though you will be transferring the debt to a different lender, it might be helpful. You can get a loan with flexible terms.

The Bottom Line

Several things can happen if you fail to pay back the loan. For instance, we have seen that your credit history will be negatively affected, meaning that it will be difficult for you to secure other loans future. The lender can also sue you or freeze your savings account. These are all adverse effects, and we hope you don’t find yourself in this condition. How best can you repay the debt? We will discuss that next time. Thank you!

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