Everything You Need to Know About Loan Default in the Philippines

Are you facing a loan default situation? It may be an unexpected situation for you, just like the other conditions, such as a medical emergency, death, or job loss. When you are in this situation, you may have difficulties in making any loan payments on time. Defaulting on the personal loan and the other types of loans may come with serious financial consequences. The time before your loan goes into default will vary from one lender to another. Generally speaking, most borrowers in the Philippines have a maximum grace period which will last for up to 90 days. Here are some of the consequences of the loan default.

a. Your debt will pile up

This is the first consequence that you are going to face when your loan is getting default. You will owe more money to the lenders because they will require you to repay the overdue balance, penalties, interest, and any other charges. For example, you have to pay a late payment fee that can be up to 7 – 10% of the unpaid balance. You are going to be buried in a deeper debt when you cannot pay the personal loan or other types of loans that you have in your account.

b. Your loan accounts will be closed

When you have any issues with the payment on a certain type of loan, you are going to face this consequence. Some lenders will close all of your loan accounts, including your existing loan or credit card accounts. They are going to bring your loan into a debt collection agency. It will add more pressure for you, especially when you are planning to repay your loan. It will be more difficult for you to do your best effort to repay your loan. You may feel uncomfortable when you are in this situation.

c. The lenders will take back your car or your home

Many people in the Philippines have to suffer from this situation. Property foreclosure and vehicle repossession are some of the worst things that may happen to all borrowers. When you are getting default on the secured loans, such as housing loans or auto loans, you are going to have this issue. As a way to get back their losses, the lenders will take back the house or your car when you fail to repay your loan back. Banks and the other lenders are going to put your asset up for sale at the public auction.

d. Your credit score will drop

This is another problem that may occur when you cannot make loan payments on time. If you default on the loan payment, your credit history will suffer. Banks are going to report your unpaid loan accounts to the credit bureaus. You are going to get a bad credit score. With this bad credit history, you are going to get a lower credit score. It means that you can have a lower chance to get a loan or credit card application approved in the future. Most lenders will charge a higher interest rate to someone with a low credit score. If you have such difficulties, check out this helpful resource and find out how to get a loan with a bad credit score.

Sean Martin D. Plantado, head of customer service for Digido.ph, notes that improving credit ratings takes time, and when there is an emergency, people don’t have time to work on it.

e. Unpaid Government Loans will take some of your benefits

When you fail to pay off your loan that is coming from the government, your benefits can be affected. For example, when you are taking the SSS salary loan and you are getting default, they will deduct the loan balance, interest, and also penalty from your disability, death, and also retirement benefits. If you don’t want to have any issues with these problems, you may want to apply for the SSS loan restructuring program. This program can be used to help you catch up your loan payment in a certain amount of time.

Different lenders or banks may have different requirements and consequences for all of their clients who are getting default. You can also take a look at the loan’s terms and conditions, in order to take a look at all the details that are related to your loan. You can start contacting your lender to explain your current situation. Then, you can start negotiating your loan terms. Most of them have their own loan restructuring programs that can help you ease up your loan payment.