As competition among lenders increases, borrowing even with bad credit is not a problem. It is often difficult to repay the loan. Some borrowers, despite having made credit mistakes in the past, take their financial obligations lightly and do not consider the negative impact of the possible consequences. In fact, these are quite serious and, in addition to being very expensive, they can pose a threat of inability to obtain loans in the future. Below are the top four consequences of defaulting on your bad credit loan.

High charges

Lenders fear loan defaults and therefore charge high fees for not being able to meet the original terms of the loan. Such fees are commonly made up of predetermined interest rates that are much higher than regular rates and late fees. While the late fee is a one-time fee that doesn’t seriously affect the cost of the long-term loan, the default percentage rates can haunt you for several months, if not longer. Even being a few days late can cost you hundreds of dollars over the life of your loan. Therefore, it is vital to stick to the original arrangements.

Impact on credit score

Once you’ve been 30 days or more behind on your loan or line of credit, most lenders will report it to the major credit bureaus. Since you most likely did not have a flawless record when you applied for a bad credit loan, any further decrease in your credit rating can pose a serious threat to your future borrowing capacity. A history of being late even once can haunt you for up to two years.

Action Collection

Once you are more than a month late, you can expect collection calls in addition to a couple of courtesy calls from your lender that you probably already received. Collection agencies are often very persistent and often unpleasant to deal with. In addition to the annoying phone calls, you may receive multiple letters in the mail, threatening legal action.

Legal action

If collection activities have no effect, many lenders would continue their attempts to collect what is owed further. In most cases, you can expect to receive documents from your local court that require you to attend the court hearing. If you lose, and you most likely will, you will not only need to remit the payment, including all late fees and charges, to your lender, but also to cover court costs. Also, a public record would appear on your credit report which is often more damaging than a late payment record as it can stay on your report for up to seven years.

All of the above is very draining, both mentally and financially, so you should do everything you can to avoid the consequences of falling behind on your bad credit loan. Even if you think you won’t be able to make a payment on time, contact your lender right away and try to make some arrangements. In most cases, if the lenders see that you have some temporary financial difficulties, they will give you a break and will not impose penalties. In the meantime, you should do everything you can to pay your loans on time, at all times.

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