Even the wisest man can find it difficult getting back into balance during emergencies. Emergencies like job loss, illness, death of loved one. These can make it so extremely hard, even for the most responsible debtor.
Apart from the loss of peace and sleepless nights, there are serious consequences attached to defaulting a loan. You should avoid getting to this point.
What is a Loan Default?
A loan default arises from not making repayments on the supposed monthly periods. When this happens, then it becomes a default. When a loan repayment is undone, it is delinquency, but it becomes a loan default when it remains unpaid over a period.
Generally, borrowers in the Philippines have allowed a grace of up to 90 days or three months before their loan is declared default. This holds for Pag-IBIG multi-purpose loans and housing loans.
Whereas, some banks have shorter grace periods before loans become default. For instance, Citibank allows a grace period of 60days before the loan is declared a default.
Can You Go to Jail for Not Paying a Loan?
“No person shall be imprisoned for debt” – So the Bill of Rights under Section 20 of Article III of the 1987 Charter. This means that you can’t be sent to jail for not being able to repay debts. But there are conditions.
Also, Atty. Romel Regalado Bagares, a lecturer for International Law at Lyceum University, explained that non-payment of debts are rather civil and cannot be raised as a criminal case. But committing fraudulent acts like issuing bouncing checks or quitting your residence without informing your creditor can make it dangerous for the debtor.
What Happens If Personal Loan is Unpaid in the Philippines?
1. Your Debt Will Pile Up
When your loan defaults, the debt piles because you’ll be due to fully repay the whole debt, as well as the interests accrued, penalties and other associated charges.
You’ll be required to pay a late payment fee of 7% to up to 10% of the total unpaid balance each month that your loan is unpaid. Or PHP200 to PHP600.
In short, having unpaid personal loans is a quick way to put you in deep debt.
Your lender will also close your unpaid loan account, and other existing loan or credit card accounts with them. Your loan account will be repainted to a collection agency, which is even worse because it extremely increases the pressure on you to repay your loan.
Sean Martin D. Plantado, head of customer service for Digido.ph, notes that if you do not pay your existing loans regularly, you will get a negative record and a bad credit history. You will be blacklisted and will not be able to get any more cash loans for blacklisted.
2. The Lender Will Seize Your Car or Home
The worst things like vehicle repossession and property foreclosure can happen to loan defaulters. Especially in cases of secured loans like auto loans and housing loans.
Lenders will repossess the loaned car or house as a way of recovering their money. Banks and other lenders will put the seized properties on public auctions and sell it to recover the loaned amounts. If the sale price is still not enough to cover the unpaid loans, you will still be responsible for paying the difference that remains.
3. Your Credit Score Will Suffer
Your credit score will suffer for your loan defaults. Banks and other lenders report unpaid loans and associated accounts to credit bureaus, and credit scores are computed using this information. This may debar you from being offered a loan in the future. Or, if you find someone to loan you, it may come with a considerably higher interest.
4. Unpaid Government Loans Will Be Deducted From Your Benefits
For example, if you default on an SSS Salary Loan, SSS will deduct the loan balance, including the penalty and interest from your retirement, disability, or death benefits. As a result, defaulting on loans can stop you from being able to claim benefits that should accrue to you.
Loan Default during COVID-19
Loan default was most likely during the pandemic. Luckily, Credit Information Corporate (CIC) urged banks and private lenders not to declare default against debtors during the pandemic.
Before you get into the worst loan situations, the better step is to discuss with your lender and negotiate a longer-term.
Consider availing of a defaulted SSS loan restructuring program to ease up your loan payments.