Some people, when they take out a loan, don’t even ask the question, “What if I can’t pay? It seems like that can’t happen. But anything can happen in life, so it’s best to understand in advance what can happen if you have a loan and no money. With the support of MyFin Service (click here), I’ll tell you everything I know about it.
You may have unforeseen financial difficulties. You are ready to pay the rest of the debt in good faith, and you’re not giving up on your obligations, but right now you don’t have the money and nowhere to get it. It may take several months before it becomes available. What can you do?
Mortgage borrowers are allowed by law to temporarily reduce or stop mortgage payments if they are in a difficult living situation. For example, they may lose their job or become permanently ill. Read more about this in the article “How to take a mortgage vacation”.
Reach an agreement with the bank
The main rule: go to the bank first, don’t hide, and don’t wait for the debt to disappear or be forgotten about you.
Even if the collectors do not call you or write from the bank, it does not mean that they forgot about you and forgave the debt. Interest accrues, the debt grows, and your credit history deteriorates.
Moreover, many banks stipulate in the agreement that the borrower is obliged to inform the bank immediately if his financial situation worsened so much that he would not be able to repay the credit on time. That is, if you do not pay and keep quiet, you are breaking even more rules.
What can you negotiate with the bank?
- Deferring Payment
One possible option is a credit vacation, a deferral of payments for several months. The bank does not have to agree to defer, but if you have been a reliable customer for many years, if you pay on time, if you have a good credit history, if the bank understands the circumstances and sees that you are not a fraud, it is possible that they will meet you halfway. Remember that such delay will increase the number of your next payments. If you are not able to make further payments the bank will not be likely to give in to you.
- Debt restructuring
Deferment is often denied. Then try to negotiate debt restructuring, which is the process of renegotiating the terms of the loan in order to lower the payments.
Most often the payments are decreased by increasing the length of the credit, for example, from 3 to 5 or 5 to 7 years. But the bank will not extend your two-year mortgage for 20 years.
There may be other options for changing the terms of the loan agreement, depending on the bank. For example, providing a grace period, when you will pay only interest or, conversely, only the principal debt for a certain period of time. Or reduced payments – for example, in the next 2 months you will pay only half of the usual payment, and in the next 2 months 1.5 times the usual payment.
Understand when you will be able to pay the loan and explain this to the bank. In order to make a decision, it is important for the bank to understand when and where you will have the money. If you plan for things to get better and be able to pay the loan in a couple of months (you’re expecting a job offer or your medical treatment will be over), tell them that. But don’t try to make wishful thinking sound real and embellish your prospects. Deception will quickly reveal itself, and the most important thing in the bank’s attitude toward you, trust, will be lost.
Do I take a new loan in order to pay off the old one?
In most cases, this is an unfortunate decision. First, you already owe one bank and you may not get a loan from another. Or they will give you a loan but at a higher interest rate than if you don’t have debts. If you scramble for new loans to pay off old ones, you can get bogged down in debt.
If the bank loses its license, I don’t owe anyone anything anymore?
No, your debt doesn’t disappear after the bank goes bankrupt, it is transferred to a third party – another bank/organization or the Deposit Insurance Agency. Debt will have to be paid, and it is important to keep your hand on the pulse: follow the news and not stop paying the loan. New details for paying the debt to the bankrupt bank will certainly appear on the Deposit Insurance Agency’s website – pay to them, and keep all the payment documents just in case. If you stop paying, waiting for official notification of the transfer of debt and change of details, then in the end you may receive not only a letter with the notification but also an imposing fine for late payment.
If I still can’t pay the loan, what can I expect?
The bank has the right to demand the money through the court, which will make a ruling and fix the amount owed. The court may take into account your difficult situation and set sparing conditions for repayment of the loan (for example, to repay the debt in installments). But to change the terms of the loan you could negotiate with the bank. And in the case of the court, you will also have to pay legal fees (for example, the bank can put the amount of the recovery of legal costs, and the court will take them into account). The amount of your debt will then increase.
If you do not pay even after the court decision, you should wait for the bailiffs. They can foreclose on bank accounts and valuable property that you have (within the amount of your debt). Furthermore, if your debt is over 10,000 dollars, you will not be allowed to go abroad until you pay it off by court order.
If you took a loan secured by real estate, for example, prepare to lose your property. If you stop paying, the bank has the right, after the court decision, to sell the collateral – that is, to sell the apartment at auction.
If you had a guarantor when you receive a loan, then you can feel sorry for him. Now he is responsible for your debt. The bank has the right to demand that he pay the loan amount.