Many people understand the basic concept of defaulting on a loan. When you default on a loan, it means that you have not made sufficient payments for a certain period of time. Lenders will consider you to be in default when you have failed to make the minimum required payment for a specific number of consecutive months. The length of time required for you to miss payments before falling into default will depend on the terms outlined in a specific loan agreement.
While a loan default can occur with many different types of loans, such as corporate loans, mortgages, and credit cards, what a loan default means will differ depending on the type of loan. Regardless of the type of loan, defaulting is always very serious and can affect your credit score. In some cases, a loan default can also result in the lender taking legal action against you. For this reason, it is crucial that all borrowers understand the terms of a specific loan they have taken out, how to avoid a loan default, and your options if you default on a loan. When a lender takes legal action, it is important to speak to a Fort Lauderdale debt defense lawyer.
Understanding the Terms of Your Loan Agreement
Many people are excited when they are approved for a loan or credit because it gives them access to funds or assets, such as vehicles, they would not otherwise have. Loans and credit are important because they allow people to build up their credit and obtain large assets that few people could conceivably purchase with cash at one time. However, while being approved for a loan or credit is typically good news, it is crucial that you read your loan agreement in its entirety and that you fully understand it.
A loan agreement is legally binding and it outlines terms such as the amount of time you are given before you are considered in default, the interest you will pay, and more. The amount of time you have before the lender will deem your loan as defaulted will range from one month to 270 days. The latter time frame typically applies to student loans. The loan agreement will also outline the recourse your lender has if you default on the loan.
What Will Happen if You Default on a Loan?
One of the most difficult aspects of defaulting on a loan is that so many people are unsure of what will happen next. When you default on a loan, whether it is a credit card or a personal loan, the lender may charge you late fees, start collection procedures, and they may even file a lawsuit. If the loan you defaulted on was secured by property, such as your home or a vehicle, your lender may repossess the automobile, or foreclose on the home. In Fort Lauderdale, lenders can also take legal action, such as garnishing your wages. This is very difficult to contend with, as it can make it much harder to pay for your everyday obligations.
Legal action will undoubtedly impact your life in a number of different ways, but there are other negative effects of defaulting on a loan as well. Any time you default on a loan, it will appear on your credit history and will negatively affect your credit score. When your credit score is lowered, it becomes very difficult to obtain credit in the future, which could hinder your chances of acquiring a home, vehicle, or other important assets.
What Happens When You Default on a Credit Card?
When you default on a credit card, the creditor will first apply late fees for every month that a payment is missed. After you have defaulted on credit card payments for a full month, the creditor will also report the delinquent payment to the three major credit bureaus. If you do not make the minimum payment for two months in a row, which is typically 60 days after the first payment is missed, your annual percentage rate (APR) will also increase. If your APR increases and the creditor applies late fees, it will result in a larger payment you are now responsible for.
There are serious penalties when you miss one or two payments on a credit card, but the consequences to your credit score will become even greater the longer you are in default. After you have not paid your credit card for six months, the creditor will likely charge off your account and sell it to a debt collection company. When this happens, the debt collector may start lawsuit proceedings and you may have to file bankruptcy.
What Happens When You Default on Your Mortgage?
Defaulting on a mortgage is extremely serious because it puts you at risk of losing your home. Before the lender can foreclose on the home and evict you from the premises, they must file a notice of default with the court. Once that notice has been filed, you can reach an agreement with the lender or make the delinquent payments to bring your loan up to date.
If those options are not practical for you, the lender will likely file a foreclosure lawsuit to evict you from the home. The lender may also seek a deficiency judgment if the home is sold for less than what you still owe on the mortgage. If the lender is successful and a deficiency judgment is issued, you are then responsible for paying the outstanding balance on the loan.
Our Debt Defense Lawyers in Fort Lauderdale Can Explain Your Options
Any time you default on a loan, you are at risk of having a lawsuit filed against you. However, the filing of a lawsuit does not automatically mean that you will face the serious consequences that come with an unfavorable judgment. At Loan Lawyers, our experienced Fort Lauderdale debt defense attorneys can help you avoid a judgment and the negative impacts that come with one. Call us today at 954-807-1361 or fill out our online form to schedule a free consultation so we can review your case.