We try really hard to maintain a positive reputation everywhere. Be it in the office, in your housing society or anywhere else, having a good reputation is really important. What about financial reputation? We usually have a perception that our finances are not visible to anyone else so we can be a little bit lenient when it comes to making financial decisions. This is absolutely wrong! The perception that, only you have access to your financials is wrong. Your financials are visible to different banks, lenders, credit bureaus and many other financial entities. Keeping a positive financial reputation is equally important.
And having a default on your credit report is the easiest way to ruin your financial image in front of your future lenders. So what is a default exactly? Have you ever heard of it? Does having a default a common thing?
A default is said to be occurred when an existing lender of yours decides to close your account due to irregular payments from a very long time. It does not really matter if you have missed a single payment or you only have some thousand rupees as unpaid, the lender has the power to declare you a default to the credit bureau and put you on the loan defaulters list hence, hurting your chances for future loan purchases.
A default will definitely stay on your credit report for at least six years from the time the lender has registered the default. Even if you have paid off your debts after the default was registered, the default will remain on the report. The flipside to this though, after six years, the lender will not be able to register your default once again even if you have not made the payment.
The loan lender on the other hand can sell your debt to collection agencies and has to mention the same on your report.
A default notice is usually sent by the lender to the customer as a last warning to pay the remaining default amount. It can be your last chance to stop that from happening. You must try and make the remaining payments to avoid getting yourself listed as a default.
There are only three ways you can work through your existing defaults if there is a decision of taking loan is on the cards. Repayment is one of the best ways to deal with a default, once you have a "satisfied" mark on your credit report towards the default you can again hunt for loans. There are a lot of times, you default your payments because of health reasons, etc. you can add a note on your report on why the loan was defaulted. Third is, time. Wait for the time when your default fades away from your report.
Now that you have understood how what is a loan default and how does it work let's take a look on four ways it can affect you,
A bad cibil score a default can harm your credit score in a very bad way and hence can hurt your chances to get another loan.
You are not eligible for any loan you cannot enjoy simple privileges of having a loan; you will have to face a lot of problems while opting for a loan.
Your data will be with all the collection agencies the story does not end with you being a default. You will be harassed by various collection agencies.
High interest rates though you may get a loan sanctioned with the default in place but you will have to pay higher interest rates. Especially with non-secured loans like personal loans, you may end up paying much higher personal loan interest rates.