You may have serious consequences of loan default, even if it’s unsecured. And, even if it’s an Education Loan or any other loan for that matter. If you default on your loan, whether its an Education Loan, Home Loan or any loan for that matter. It will appear on your CIBIL Report or credit report. Check the terms & conditions and other details before you sign off on a loan agreement. Of course, if you have money lying around, it does beg the question as to why you’re not making repayments!
If you do not put in any effort to negotiate or settle a debt and it gets written off, then, you are ruining your CIBIL report indefinitely. That means that default will remain on your CIBIL report forever. However, if you try and settle the debt through recovery teams or Credit recovery camps, then defaults or partial defaults are removed from your credit report after three years.
Consequences of Loan Default:
Social Reputation is at risk:
Banks or financial institutions may keep coming to your residential address for recovery of default loan amount or the complete loan amount. When they come your residence, they may talk to your neighbours about you. Also, they call on the telephone numbers on which you call frequently for the recovery. It definitely affects your image among your family, friends, relatives and colleagues.
Difficulties in Employment :
If you are already in a job and you default on your loan. In that case, your bank or financial institution may follow you to your office as well for the recovery of your default loan amount or complete loan amount in some cases. As a result, your good will, name and fame everything may get ruined.
In other scenario, if you are looking for a job, in that case, your potential employer cannot check your credit report or CIBIL Report. However, they may request you to show it. Some companies have strict policies against hiring people who have defaulted before. This may be taken as a sign of irresponsible behavior. In some industries, such as finance, loan default may affect your job badly because it could be considered that how would people trust a financial advisor with a long list of defaults.
Having Money Seized from Your Accounts:
If you have money in the lending bank, they may be able to take it and use it towards repaying your debt. However, it depends on the bank in question and the terms and conditions involved.
On the basis of the contract that you signed for a loan, you are legally obliged to pay back your debts. If you do not repay you loan, your bank or financial institution may initiate legal proceedings against you. You will usually receive the first legal warning if you have not made repayment in more than 30 days.
No Access to Crucial Loans:
If you do not repay your loans on time, any kind of loan for that matter, this loan default of yours will reflect in your CIBIL report. A poor CIBIL score or credit score will make it difficult to obtain crucial loans, such as a home loan or education loan or business loan, etc. You may deprived of important financial requirements or opportunities. For instance, people unable to get a home loan are often forced to rent. This is a significant waste of money, as they are unable to own a home to rent out or resell. Those unable to get education loans may struggle to find better job opportunities, or obtain promotions.
Looking for Loan Forgiveness?
So, if you’re in loan default, start taking action immediately and make sure to create a plan of action. Ignoring your student loans or any other loan for that matter, won’t make them go away.
There are options those can help you get out of loan default. Loan consolidation is one of those. It lets you to consolidate your loans into a new single loan with a fixed interest rate. However, options vary from bank to bank or one financial institution to another. So, you need to research these options as per your bank or financial institution and work with your lenders to figure out what you can do to get out of default because there are no ways to skip them at all.
In short, getting your debt written off may seem like a good thing in the short term, the real costs are rarely worth it !!!
Instead read this to find out the Best Strategy to repay your Education Loan and its benefits.