Once the time that was agreed to repay your loan elapses, the lender brings it to your attention, probably by sending you an email, an SMS, or by giving you a call. The importance of this step is to remind you of the agreement and your responsibility to pay up. Some lending platforms will forward your name to their collections department or agents who will keep you on your toes until you pay up. This is not an ideal situation to find yourself in and it’s quite stressful. If this does not work, the lender may:
Your loan will start attracting higher charges if not paid on time. This means that you may even have to pay twice the amount you borrowed due to these charges. Mobile loans are especially notorious for charging high interests when you default. This is mainly because such loans are unsecured therefore have a greater risk.
Report you to Credit Referencing Board (CRB) as a defaulter
Once the lender reaches out to you and you fail to repay your loan, the lender can decide to report you to CRB. Once listed by CRB as a defaulter, you will not be able to borrow money from any lending platform for a period of around five years or so. This also means that if you are looking for a new job, you may have a hard time getting one as employers often check your credit worthiness with CRB.
Engage their legal team
Once a lending platform realises that destroying your credit reputation does not work, the lenders can decide to call in their lawyers to deal with your defaulting. When taking a personal loan, there is a clause in the agreement document that allows the lending company to collect money from you if you default. The clause gets interesting, and not in a good way since you have to pay the lawyers to ask you for the loan. This means that you are charged for any letter that you receive from them. You also have to pay for any calls or any visits they make to you. Some mobile loans lenders are also legally allowed to take money from your Mpesa until your debt is paid in full.
Settle it in court
When you default especially on a big loan, the lenders have no option but to take you to court. Being taken to court is something you generally wouldn’t like to happen to you. This is because you are supposed to take care of any expenses that the lender incurs during the court proceedings, attend the proceedings, and still pay up in the end. Once the lender wins the case against you, the judgment is updated in the CRB against your status. This means that for five years, anyone who checks your credit records will see the judgment against you. This may not favour you since it will be hard to get any more loans, attract investors or even gain employment.
What to do…
No one in their right mind wants to default on a loan. Sometimes things do not go as planned, which is the reason why most people will find themselves in such a position. Therefore, before you take that loan ensure you have a valid reason for taking the loan and that there is no better option, have a proper repayment plan and be keen on the loan conditions.
You should also ensure there are no hidden clauses. Lenders are not inhuman and they can listen. When you find yourself in such a situation, meet up with your lenders and communicate your situation with them. Chances are, they will hear you out and come up with favorable terms for both parties, saving you from embarrassment and financial pain.