In this article, discover 7 consequences of taking out a loan and not paying it back. They will serve as a warning and prevent you from letting the situation reach this point.
7 consequences of taking out a loan and not paying it back
There are at least seven consequences when you take out a loan and don’t pay it off. All of them have their own degree of severity. Some may be a little pesky, while others are a lot of pain.
Find out how each of the consequences and just how much harm they can cause in your life.
1 – Bad name.
When it comes to debt, this is certainly one of the most feared and mentioned consequences. In fact, because it is mentioned so often, it sometimes seems to be the only one that actually happens.
We chose to start with it so that you understand that having your credit in arrears for taking out a loan and not paying it back is just the beginning of the headaches.
If you are in debt to someone, for example, that person can — if they so wish — warn other people about the situation. The result? You will be spoken of badly, earning adjectives such as deadbeat, scoundrel, dishonest.
Something similar happens when you take out a loan and don’t pay it back: the bank has the right to notify SPC about the existing debt. After it does so, you receive a letter with a minimum deadline to pay off the debt.
If you do not pay your debt, the list will be forwarded to the blacklisting, which literally means you failed to comply with your obligation in paying taxes and, therefore, cannot transact on various services, such as taking other loans or even just applying for a credit card.
2 – Difficulty in obtaining credit.
As mentioned, when you take out a loan and don’t pay it back, your credit score will be negatively affected and you will face several problems, such as difficulty getting a credit card or getting financing.
This is because all the banks and stores, for instance, will be aware that you are not a consumer who pays for what they purchase. They will know that you always cause trouble, so they will just turn down your credit application.
3 – Unwanted debt collection calls.
Not that calls for collecting debt are wrong at all, if someone takes out a loan and doesn’t return it, they should be prepared for the consequences. However, that doesn’t make them less annoying.
Sometimes, it is the bank’s customer service making the call to collect the debt. There are times, however, when the bank sells the debt to another company, which then becomes the one responsible for making the collection calls.
Note: when selling the debt to another company, the bank is required to remove your name from credit protection agencies. The company that purchased the debt, on the other hand, by becoming the new party responsible for receiving the amount due, can include your name once again in the SPC.
4 – Bad history with the bank.
If you buy something on credit at a grocery store near your home and don’t pay it back later, you’ll have a history. You’ll be unlikely to make any other purchases there if you’re told “I’ll pay tomorrow.” You’ll lose credibility.
The same thing happens if you take out a loan and don’t pay it back. It’s as if your name, once clean and shiny, is corroded by the acid of debt. Your name is recorded and engraved in the bank’s history as someone who is a bad payer and has no credibility.
And the worst part?
Even if you really try to pay out your debt, it doesn’t matter at all. Your credit history with the bank will have been tarnished; hence, you’re always going to have trouble securing other services from that bank—for instance, applying for a loan.
Is the debt paid? Yes. Is your name clean? Yes. But your record is cracked.
5 – Out of control of debt.
Have you ever seen an avalanche? That accumulated mass of snow falling down a mountain?
It doesn’t start out big and destructive. It doesn’t start out, let’s say, all that threatening. It starts out small, and from a distance, it looks like a light, harmless white cloud. But the faster that mass of snow, ice, and debris plummets toward the valley, the faster and more dangerous it becomes.
Taking a loan and not paying for it is just the same. After all: when it actually comes to high interest rates, personal loans have the biggest interest rates. In one year, for instance, your debt can just double, in two years worse and then the avalanche just keeps higher and higher.
If you’re lent and in arrears, negotiate with the bank ahead of the debt worsening to a point that it’s hard to service it.
6 – Property/vehicle taken.
Taking out a loan and not paying it back can have even more problematic consequences than the previous ones (which are already problematic).
This consequence comes, however, only if you take out a secured loan: when you leave an asset (real estate/vehicle) as collateral to the financial institution. You will lose an asset in such a way if you do not repay the loan.
7 – Credit score decrease.
Essentially, a credit score is a score for one sole purpose: to let you know if you’re a consumer who pays the bills or if you’re nothing more than a debt creator.
This score ranges from 0 to 1000. The closer you are to 1000, the better payer you are. The closer you are to 0, the more likely you are to buy things and then not pay for them.
This may mean it will be harder for you to get approval for your credit card, among other things.
