Most loan defaulters will now face a blacklist, a low credit rating, late payment penalties, and other circumstances.. However, that is not all of the consequences you will receive.

Below are the examples of how banks can punish you if you don’t pay back these types of loans.

Consequences of Different Loans

1. Credit Cards or Personal Loans

Failure to make payments on credit cards and personal loans will result in a lawsuit for the money owing. However, this is usually the lender’s last option step. 

You’ll need to pay late payment fees initially. If you still don’t pay, your lender may enlist the help of debt collection agencies to get the money back. Your credit score will be tarnished at this stage, and obtaining financing from banks would be nearly hard. If your bank determines that there is no way to recover the money you owe, they may file a bankruptcy petition against you.

2. Car Loans

When you default on a car loan, one of the worst things that may happen is repossession. Repossession is when the bank removes your car from you and holds it. Missing more than two payments usually triggers the repo process, however this varies by lender.

You’ll almost certainly be responsible for legal fees as well as charges associated with repossessing and holding your vehicle. However, if you have already paid off more than 75% of your car loan, you will require a court order before you repossess your vehicle.

3. House Loans

Because mortgage payments are typically substantially larger than other types of loans, they can result in more severe penalties. If you miss more than three to four months of instalment payments, the bank may initiate foreclosure proceedings, which may result in your property being auctioned. Furthermore, your guarantor is now responsible for your debt and may be blacklisted. Moreover, whatever asset you put up as security for the loan may be liquidated to pay off your debt.

You will still be responsible for paying off the rest if your home was auctioned and the earnings were insufficient to repay the loan amount. If your account balance exceeds RM30,000 in six months, the bank may initiate a bankruptcy petition against you.

How to Prevent Yourself From Consequences?

Be proactive and take control of the matter before your bank blacklists you or takes your house and car away.

1. Request extensions or changes to your loan from your bank. This may or may not work, but it’s worth a try for forgiveness and a chance to pay off your debts.
2. Look for different strategies to pay off your debt. You can refinance your home, automobile, or personal loan for better terms, such as reduced interest rates and more manageable monthly payments.
3. When it comes to credit cards, you can apply for a balance transfer to avoid paying interest for a set amount of time while also lowering your monthly payments.
4. If the interest rates on a personal loan are lower than those on your credit card, you can use it to pay off your credit card debt.
5. If you’re having trouble managing your debt, call the Credit Counselling and Debt Management Agency for assistance in negotiating with banks on your behalf.
6. Before you take out any loan, make sure that all of the financing options available to you are affordable.

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