People take loans for several reasons — from financial emergencies to medical expenses to home renovations to honeymoon budgets. If you’re taking a loan, it’s probably because you’re low on your savings. However, it should always be a kind of loan you are in a position to repay.
When you take a loan, repaying it is usually the last thing on your mind. Even moneylenders in Singapore make your loan approval process quick and convenient these days. However, just because you get loans in Singapore easily doesn’t mean you can afford to be careless with them.
While defaulting on your loan may look like an easy way out (thanks to the wrong portrayal in movies and shows), it is a major financial headache in real life. In all seriousness, not repaying your loan can affect your life goals.
In this blog, let’s go over what happens if you don’t repay your loan in detail.
5 Serious Consequences of Not Repaying Your Loan
1. Legal Proceedings
You sign a contract when you get a loan, and that is a legally binding contract that holds you obliged to repay the loan. So if you fail to repay your loan, your licensed moneylender can take legal action against you. They can issue letters of demand from a lawyer or file a lawsuit suing you for the outstanding debt.
Financial institutions usually initiate legal proceedings if they suspect you have the money to repay but are willingly becoming a defaulter. If your loan payment instalment is due for more than 30 days, you will first receive a legal warning. Institutions can take action against you sooner if they think you’re up to something fishy.
2. Collateral Loss
If you took a secured loan, such as home mortgages, car loans, or business loans, you pledged your valuable assets as collateral to the financial institutions. If you fail to repay your secured loan, moneylenders may seize your collateral to recoup their losses.
3. Money Seized from Account
If you take an unsecured loan, you don’t have to pledge collateral. Thus financial institutions can’t seize your assets. However, if you have money in your bank account, the institution can seize that and use it to repay your loan.
However, it largely depends on the financial institution in question and the terms and conditions involved. Therefore, before you sign off on your loan documents, check the details and read everything.
4. Employment Issues
Your credit reports show everything about your loan history. If you didn’trepay your loans, it will show that. If your debt was written off and you didn’t settle it, the default will be on your credit report forever.
Generally, potential employers cannot check your credit report. However, they can request to see it. Lately, finance companies have been doing so to ensure they do not hire people who are in debt or didn’t repay loans. It is either seen as a sign of irresponsibility or suggests your finances will affect your work efficiency.
5. No Future Loans
Banks go through your entire credit report before providing you with a loan. Unlike banks, moneylenders do not base your loan approval solely on your credit score. Still, failing to repay your loan can affect your probability of getting a future loan.
Every loan application has to go through the Moneylender Credit Bureau (MLCB). It stores information, such as your borrowing limit, unpaid loans, and repayment history. The database will show your missed loan payments. If your data shows a long history of failing to repay your loan on time or still having outstanding debt, the moneylender is likely to reject your application.
What Can Moneylenders Do?
Loan sharks are quite prevalent in Singapore. Several times, people take loans from unlicensed and illegal moneylenders in emergencies. Since they have unusually high-interest rates, borrowers often fail to repay their loans. As a result, loan sharks take to illegal ways to get their money back.
Therefore, it is vital to know what licensed moneylenders can do in case you fail to repay your loan. Have a look –
- Moneylenders can mail you a letter of demand for the missed instalments.
- They can visit your home (and as a last resort, your office) to deliver a letter of demand.
- During reasonable hours, they can try to contact you by phone or text message.
- They can take legal action against you.
What Can Moneylenders Not Do?
When you research the best moneylenders in Singapore, ensure you shortlist the licensed ones. Licensed moneylenders are governed under the Moneylenders Act. Thus they need to abide by certain regulations and laws. They cannot resort to illegal activities, unlike unlicensed moneylenders.
Oftentimes, moneylenders hire debt collection agencies to collect money owed to them by the borrowers. However, even agencies have to comply with the regulations.
Here is a glimpse of the code of conduct and good practices that licensed moneylenders and debt collectors have to comply with. They cannot –
- Try to injure you
- Intimidate, threaten, or harass you, and/or your family members
- Stalk you or your family members
- Assemble you unlawfully
- Damage or vandalize your personal property
If you face any kind of harassment, you are within your rights to take action against the moneylender. You can –
- Report the moneylender to the police
- Complain against the moneylender to the Credit Association of Singapore
- Make a complaint to the Ministry of Law’s Registry of Moneylenders.
We agree that all the consequences above make it look like everyone should stay away from loans. It’s true to a certain extent — loan repayment is not as easy as it looks. If you don’t have the money now, you need to map out how you will repay the loan.
Therefore, before you commit to a loan, understand the basics of budgeting your expenses. Otherwise, you would land yourself in debt and possibly bankruptcy. Also, it’s vital to understand the difference between good debt and bad debt. Strategic use and proactive planning will help you sail through the financial currents.
If you need a loan, SU Credit Pte Ltd can help you. We offer our clients tailored financial packages and hassle-free loans. Get in touch with our experts today at +65 6636 5644.