3 Negative Effects of Loan Defaulting Everyone Should Know

The impact of defaulting on loans a borrower

Defaulting on a loan simple means missing payment when the date for a credit facility (loan or debt) is due.

This can happen to mostly poor borrowers who at the due date lack money to do the payment most probably after misusing the cash or maybe after being hit by a financial calamity which is so unfortunate.

But even the rich can miss a payment to their due loans just by forgetting the due dates. This happens rarely though due to constant reminders from the lenders.

Now if you become a defaulter what exactly will happen to your financial wellbeing and your relationship with lenders?

Defaulting can have a lot of negative impact on your financial journey but here are the major three;

 Impact of Defaulting on A Loan 

It can be a small or big loan, a car loan or a mortgage, a personal or a business loan. If you cross the line to the defaulters bay ,this will or can happen;

1) Decline in Credit Score

Your lender will report you negatively the Credit Reference Bureaus (CRBs).In kenya we have Metropol CRB, TransUnion CRB and CreditInfo CRB.

These CRBs will lower your credit score to a point that creditors will start see you as a threat to their businesses. In short, lenders will shy away from giving you loans.

2) Collateral Repossession 

If at the time of taking that credit facility (loan) ,you tied your possession(s) like a car, land, house ,household items or anything as security , then the lender will take that to compensate the unpaid loan as agreed.

3) Annoying Collection Agents Collisions

The lender will do everything possible to reach out to you as a debtor in order to ensure you pay the defaulted loan(s) but that's okay because it's always done professionally.

Sometimes however, your lender can give your details to a collections agent who will have all the time to call, sms and even email you so frequently that you won't like it. It will be gross.

Therefore, before you default on a loan, think about the above three effects.


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