Taking out a personal loan seems like a great way of getting hold of some much-needed cash when you find yourself in a tight financial spot.
Applying for a loan is pretty straightforward and, as long as you can make the monthly payments on time, everything is fine.
What happens when you find yourself in a difficult financial position and are not able to meet the monthly payments?
If you have a bad credit score, then it's highly unlikely that you will get a loan. Get your credit score first and see where you can improve.
If you have received the loan from a financial institution such as a bank, missing a single payment won't be too much of an issue as long as you have notified them in advance.
If however, you cannot meet the monthly payments the financial institution has the right to take legal action against you, and this will be registered on your credit report. The result of this is that your credit score will be lowered and this will affect your ability to borrow money in the future.
Before resorting to any court action, the financial institution may try other ways to get their money from you. If you have a cheque account or savings account with them they may remove from the account any monies that you owe them.
In a worst-case scenario, if you used your car or house as collateral they could repossess the asset. If there is no collateral to be seized the financial institution will hand your file over to a debt collection agency who will then attempt to recover the outstanding debt. If they are still unable to recover the money, it will be handed over to an attorney.
Before any of the above scenarios raise their head, the best thing that you can do is to contact your financial institution and negotiate with them. In most cases, they will be willing to negotiate fresh terms with you and will offer some valid options in order to help.
Keeping quiet and not contacting the lender if you cannot make the payments is a mistake that is most often made by people in these situations. Always be open with them about your current situation and don’t hesitate to contact the financial institution. Bottom line is, always keep the lender up to date on your financial situation before its too late.
If you are really unable to meet your loan repayments, you could consider consulting a reputable debt counselor. They will negotiate with the lender on your behalf and help you to get back on your feet.