Failing to repay a loan on time can have serious consequences. The type of loan and amount owed will largely determine the repercussions. But, no matter the type of debt or loan, it is crucial to keep in mind that ignoring it or feeling stressed out won’t make it disappear.
You will still be responsible for paying it back. Here, we will discuss some of the essential factors to keep in mind when unable to repay a loan on time and the consequences of failing to do so.
Being Added to a Watch List: If you don’t repay your loan on time, you may be added to a Watch List. This list is comprised of individuals who have been identified as having a high tendency to take out loans without repaying them.
Being on such a list has severe consequences. For example, if credit referencing companies in Nigeria report you to the Central Bank of Nigeria, you will be officially listed as having poor creditworthiness.
This means that you will be labeled as someone who cannot be trusted with a loan facility, and no matter how badly you need money, your loan application will be rejected.
- Affected Credit Score One of the first things to suffer if you are placed on a watch list is your credit score. A credit score is a numerical representation of your creditworthiness, based on a variety of personal financial data.
Financial institutions consider individuals with high credit scores to be less risky and more likely to repay loans. People in this category have access to a wider range of credit products with lower interest rates.
On the other hand, when you have unpaid debts or loans, the implication is the polar opposite of having a good credit score.
A bad credit score is a red flag that follows you around, making it more difficult to borrow money, whether for a car loan, mortgage, or personal loan. If you do qualify for the loan, you will almost certainly be charged a higher interest rate because you are considered high-risk.
- Accumulating Late Fees If you fail to repay your loan on time, late fees will continue to accumulate on the unpaid debt. The longer you wait to repay the loan, the more late fees will accumulate, making it even harder to pay back the loan in full.
Contacting Collection Agencies Lenders may contact collection agencies to have your name blacklisted. In today’s global village, information about your credit history is available to financial institutions and lenders.
A private limited liability company called the CRC Credit Bureau Limited was founded by a consortium of ten leading financial institutions to provide a nationwide repository of credit profiles of both corporate entities and consumers.
This database enables banks and lenders to assess your credit risk effectively. If you take out a loan and fail to repay it, you risk getting blacklisted by the credit bureau, which means you will end up getting blacklisted by other financial organizations as well.
- Debt Collectors Pursuing You Loan collection agencies are charged with the task of recouping unpaid debts and loans from defaulters. They are quite common in Nigeria and may use tactics that could ruin your reputation long after you have been forced to pay back.
Eventually, debt collectors will come after you. They have mastered the art of exerting pressure and will stop at nothing to get their hands on unpaid debts and loans. The procedure for recovering debt may include initial investigations and background checks, issuance of an internal demand ultimatum notice, and rigorous contact with the debtor.
Some debt collectors may even offer to recover unpaid loans on a “100% no recovery – no fees basis,” with the caveat that collection efforts are pre-legal.
What to Do If You Can’t Repay Your Loan If you find yourself unable to repay your loan, the first step is to get in touch with your lender.