Unsecured personal loans can be used for pretty much everything. Most people borrow a personal loan as they are easy to access and are flexible in terms of repayment. Apart from that, lenders also offer a sum as low as £1,000. You can choose the loan term and amount according to your financial requirements. The approval of loan application depends on several factors such as credit score and income. Even with such flexibility, borrowers often find it difficult to repay the entire loan amount. So, what happens when you default at a personal loan?
Let us delve deeper to know more about how these unsecured personal loans work:
What is the best reason to get a personal loan?
We take out loans when we are facing a financial crunch. We have listed 5 popular reasons to get a personal loan:
- Debt consolidation: You can merge all your existing debts into one. Instead of repaying multiple debts, you can only pay one against them all. This is an effective method of managing your debts. Also, if you find a consolidation loan at an interest rate lower than the combined interest rate of all your other debts – you may save a lot of money in interest.
- Weddings: One of the most special events in our life is our wedding. Most of us do not have thousands of pounds in our bank account saved only for this day. If you are running short of a few pounds, you can use a personal loan for your wedding to cover the expenses.
- Home improvement: Making improvements to your current residential property may need you to have a strong financial backup. But many homeowners in the UK borrow a personal loan to carry out the renovation project.
- Holidays: Jetting off to the sun is expensive. A personal loan can help you fund your next vacation. Borrow a personal loan for your holiday and repay it in fixed monthly instalments.
- Other expenses: You can use these funds for making ends meet. From paying your medical bills to using it to repay your credit card bills – a personal loan can help you manage the shortfall.
Can unsecured loans be written off?
People who cannot afford to make any repayment towards the debt that they owe can get a write-off. Whether your personal loan can be written off or not depends on your loan provider. There are a few scenarios in which your unsecured personal loan may be written off:
1. Problems in the contract
There was some issue in the contract that you have now highlighted – request the lender to write off the debt if you can no longer repay it. You can request the lender under certain circumstances:
- The terms of the agreement were misleading.
- You have a long –term health condition.
- You were forced to take the loan by your partner and now your relationship has ended.
2. You’re making small repayments
Since the beginning of the repayment term, you are making small repayments every month. You are not making payments of the full amount. If you do not have any assets that you can sell off to repay the debt, you can request the lender to write off your debt.
What happens if you default on an unsecured loan?
An unsecured personal loan is a loan that you borrow from a bank or private lender. You agree to make regular repayments calculated based on the interest rate charged – until you’ve paid it off completely. As these are unsecured loans, no asset is tied to it. That means if you fail to repay the loan, your lender cannot possess your property to recover the amount you owe them. But is that all? The answer is no.
If you default on an unsecured loan – your credit score is ruined. The lender sends your repayment activity report to the Credit Reference Agencies who calculate your score. Failing to repay the loan on time and in full will damage your credit score. With a damaged score, it will become difficult for you to borrow a loan in the future.
Moreover, lenders can take legal support to make you pay them back. You may receive a County Court Judgement (CCJ) asking you to repay the lender.
What is the easiest way to get a personal loan?
The easiest way to get a personal loan is to apply for it online. But before you start applying for a personal loan, ensure you compare multiple offers. Unless you know which lender is offering you a loan at what rate you will not be able to choose the best one available. Shop around and shortlist 4-5 offers that you feel may work for you. Start checking their APRs, and monthly repayment amount. Go through the fine print and if you find something in the contract that you do not agree to – flag it to the lender.