Whether we like it or not, there are just things that do not work out as what we initially planned. Probably, you thought of paying off your loans but life has other plans for you like health event or a job change that can easily put you off the track. So, what happens when you encounter the worse case scenarios of your life?
Some are considering to “default” on their loans. It is important that you know how it is going to affect you, especially on your credit and finances.
What Happens on a Default?
As expected, there are consequences associated when you default on a loan. Specifics will depend onto your situation but, rest assured that your credit score would take a hit.
Legal Troubles and Credit Issues
Most probably, your credit is going to suffer if you fail in making payments required. For the first month after your payment is due, you are probably in the clear but after that, lenders will be reporting missed payments. This in turn would lead to lower credit scores.
Low scores would make it difficult to secure for a loan and at the same time, it will affect other areas of your life such as:
- Signing up for phone service and utilities
- Buying insurance
- Finding a rent
You don’t want any of these things so as much as possible, keep a healthy record of your credits and finances.