Loan default can occur for a number of reasons. Monthly repayments on personal loans start out as affordable, but this can change very quickly. Personal debt problems often occur as a result of involuntary redundancy, reductions in overtime availability or deteriorating health. Not only does loan default result in a bad credit rating, it may also mean creditor harassment from debt collection agencies.
Loan Default Causes a Bad Credit Rating
Not being able to keep up with loan repayments will mean that lenders will pass this information on to all three credit reference agencies. Loan default will result in a bad credit rating. This will mean that other borrowing sources will become more expensive or even inaccessible. However, defaulting on a loan will leave more available to pay secured loans and other essential household bills.
Personal Debt, Charges and Interest Payments
Loan default is often seen as an effective way of dealing with debt. Defaulting on a loan can serve to worsen financial difficulties as missing monthly payments will incur further penalties and charges. Unless a debt solution is pursued, interest will also accrue. Some people manage to escape personal debts by avoiding payment and contact with creditors for a period of 6 years.
Creditor Harassment and Debt Collection Agencies
For the first few months following loan default, creditor harassment will only consist of the odd phone call. However, dealing with debt involves selling-on uncollectable accounts to debt collection agencies for 10-30% of the personal loans value. Debt collection agencies will then pursue customers in order to recover personal debts. All debt collection agencies must comply with OFT guidelines.
Debt Solutions and Full-and-Final Settlements
Dealing with debt doesn’t end with loan default, it is necessary to either offer creditors a full-and-final settlement or identify an appropriate debt solution. Those with serious personal debts could pursue a debt solution, such as an Individual Voluntary Arrangement or personal bankruptcy. Personal debts under £15,000 can be negotiated with a Debt Relief Order or debt management plan.
Loan default can be a step in the right direction for those seeking to balance household bills. However, it will result in a bad credit rating and creditor harassment from debt collection agencies. A debt solution, such as an Individual Voluntary Arrangement, Debt Relief Order or debt management plan can help someone escape their personal debts.
Those struggling with financial difficulties and personal debt may be interested in finding out whether they have an illegal credit card or unenforceable loan agreement as it could be written-off. Individuals that are struggling with serious debt problems may be able to write-off debt with a debt solution, such as an Individual Voluntary Arrangement.