Defaulting On The Loan

If the borrower is having problems repaying their loan for any reason, the first thing they need to do is contact their lender. Sometimes things occur that are unplanned for and keeping the lines of communication open between the borrower and lender can smooth the bumps of a difficult time.

While a late payment can hurt the borrower’s credit, they should still alert their lender as to the reason why. Temporary set-backs happen to everyone. Most lenders are willing to accept a late payment and in order to give the borrower a hand, they may waive any service charges or late fees.

If the setback is of a longer nature and the borrower and lender have remained in constant contact to work through the situation, the lender may be willing to work out a suitable arrangement for the borrower to pay back the loan. Keep in mind that in order to do this, there may be additional interest and fees attached to the original amount of the loan. The ability to pay it off a little at a time, though, will be better than the alternative of running up more fees than the borrower will be able to handle.

If the borrower should happen to default on the payment arrangements, the lender has the right to send the loan into collection status. If this happens, any collateral on the loan – house, boat, car – can be repossessed after proper legal steps have been taken. In some cases, like foreclosure proceedings on property, the borrower has the opportunity to sell the property before it forecloses or even have the chance to raise the money to completely pay off the debt.

Where student loans are concerned, borrowers who cannot pay the loan can request a deferment, forbearance or forgiveness. A deferment is the postponement of repayment on a student loan for a set number of months. If the loan is subsidized, any interest that adds up on it while in deferment will be paid by the government. If it is unsubsidized, the student or parent responsible for the loan is responsible for the interest that accrues during the postponement. Forbearance is another postponement on a student loan but regardless of whether it is a subsidized loan or not, the borrower is responsible for the interest that accrues during this time. Forgiveness – also known as discharge – is when the loan is completely and utterly written off due to permanent and total disability of the borrower.

No matter what happens to cause a borrower to default on a loan, they should always contact their lender.