What happens if I do not pay a loan?

by Jose Donaldson

When a personal loan is accessed, it is usually done with the security of being able to repay the debt in the installments established by contract. However, in times of economic recession it is usual to suffer sudden changes in your financial situation and even live unexpected situations such as a layoff. So, what happens if you default on a quick, personal or mortgage loan?

Stop paying a loan, whatever the type, can cause serious problems. In fact, in any forecast or personal economic planning, the payment of the loan must be a priority. Why? Mainly because, although not paying can seem like a short-term solution, it will only aggravate and worsen your financial situation.

Therefore, if you can not meet the payment of the loan, it is best to talk to the bank or private entity that has given you and explain in detail what is your situation. In this way you can find a beneficial solution for both, since credit institutions prefer to charge late than having a delinquent client with whom they are forced to open legal proceedings.

In the event that you decide not to pay – something that we strongly discourage – a process will be initiated that will gradually increase the debt and, if it is delayed over time, may result in the loss of present and future assets. These are the terms with which the credit entities work:

As soon as you stop paying the first installment, you will be charged late interest, which is much higher than ordinary interest. In addition, as a general rule, they will apply the so-called “claim for debit positions” commission, whose cost ranges between 30 and 45 euros. Interest that accrues to your original debt.

In the event that you accumulate a second non-payment, the entity in question will value entering your personal data in the files of defaulters (such as ASNEF, Badexcug or RAI), so it will hinder and prevent – in some cases – that you can get back financing in the future.

Between the third and sixth non-payment, and in case of not reaching any type of agreement with the bank or entity, a legal claim will be initiated.

Once these terms are met, the consequences will vary according to the amount and type of loan requested. In the case of a mini-credit whose value does not exceed one thousand euros, it is likely that the entity does not enter into legal actions thus avoiding the derived costs. But do not forget that you owe more money every day that passes.

If you contracted a personal loan -or consumer-, it means that you put all your present and future assets as collateral and, therefore, in case of prolonged non-payment the judge could seize the necessary assets to cover the entire debt (such as part of your payroll, pension, bank account, car or home).

In the event that you request a mortgage loan , the bank or the lender will request the foreclosure of the mortgage and you will have a longer term (usually one year) to pay the debt incurred. If you do not pay this amount within the established period, you would lose any right as owner and the house would go through an auction process.

In short, do not stop paying a loan as a solution to a problem of economic liquidity, since it can be the trigger for much worse problems. And, above all, do not apply for a loan without having the assurance that you can return it.