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What Happens When You Default On A Personal Loan? – Forbes Advisor

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It happens to the best of us. No matter how hard you try, sometimes life conspires against you and you have to default on a personal loan.

It’s always worth examining what you could have done differently. But often there’s nothing you could have done—you can’t always prevent job losses, illnesses or disabilities. Even if you would do things differently a second time, defaulting on a loan doesn’t mean you’re a bad person. And more importantly, there are ways to overcome it.

What Does it Mean to Default on a Personal Loan?

Defaulting on a personal loan means you’re behind in making the payments you agreed to in the loan agreement. Once you default, the lender can take the next steps to recover the money you owe them.

Technically speaking, you could be considered in default after you miss your first payment. But because debt collection is an expensive process for the lender—and there’s a chance you’ll pay up on your own—they’ll usually wait until you’re at least a few months late before actually enforcing the default provision in the contract. When default occurs may also vary by lender and the terms of your loan agreement.

How Loan Default Works

Once you’re in default on a personal loan, it unlocks a whole new chain of events, and your lender can start trying to recover its money. Default also can have a range of negative consequences on your credit score, and ultimately, on your wallet. However, if you’re faced with default, it’s important to realize that you do have power—there are people who can help you and you have protections under the law.

The Fair Debt Collection Practices Act (FDCPA) spells out exactly what debt collectors can and can’t do. For example, debt collectors aren’t allowed to harass you by threatening violence, using obscene language or other shady tactics.

Consequences of Defaulting on a Personal Loan

Nothing good can come from defaulting on a personal loan. But preparing yourself for some of the common consequences can make the process less scary. Here’s what you can expect to happen:

It’ll Hurt Your Credit Score

Your late payments—even before you’re considered to be in default—will be reported to the credit bureaus. This will likely harm your credit score. Depending on how high your score is to begin with and how long you’re past due, it could hurt your score quite a bit.

One FICO study showed that paying your mortgage two months late could result in your score dropping by up to 130 points, and could take around seven years to fully recover.

Having a bad credit score hurts you in several ways. It can make it more difficult to rent housing, buy a house and get a job, among other things. Even if you can get approved for a loan, a poor credit score can make it much more expensive.

Your Lender Can Take Your Collateral

If you have a secured personal loan, your lender can actually take any collateral you provided to secure the loan. For example, if you used your car for collateral, your lender can repossess your vehicle. If you used a savings account or a CD for collateral, they can take that too.

You’ll Hurt Your Loan Co-Signer

Similarly, if you have a co-signer on your loan, this will trickle down to them too. It might harm their credit score just as much as yours, and the lender will be able to contact you and your co-signer to collect payment. At best, this leads to some awkward Thanksgiving dinners. At worst, you’ve irreparably harmed an important relationship.

You Can Be Harassed by Debt Collectors

“Collections” is one of those dreaded words that no one wants to see. If you’re in default on your personal loan, your lender may try to collect that debt themselves, hire a debt collection agency to collect the money or even sell your debt to someone else like a private debt collector.

The last two possibilities—debt collection agencies and private debt collectors—are particularly worrisome. This is a rather unscrupulous industry that often ignores the rules set out in the Fair Debt Collection Practices Act that are designed to keep you safe. According to one survey from the Consumer Financial Protection Bureau (CFPB), 25% of people contacted by debt collectors felt personally threatened.

You Can Have Your Wages Garnished and a Lien Placed on Your House

One of the legal tactics that debt collectors have in their pockets is suing you for the debt. If this happens, you’ll need to show up in court. If you don’t, the judge may automatically rule against you. In the case of a judgment against you, the debt collector can garnish wages from your paycheck.

Another scary possibility is that the debt collector can have a lien placed on your home. This can prevent you from selling it or taking out a home equity loan or line of credit. In some cases, the debt collector can even force you to sell your home to pay off the debt.

What You Should Do Before You Default

Suffice to say, defaulting on a personal loan is never a good idea.

If you’re not in default yet but you think you’re close—or if you’re having trouble making your payments—the best advice we can give you is to reach out to your lender. It’s tough, and it may be embarrassing, but you can save yourself a lot more hassle and embarrassment down the road. If you’re facing default, try these suggestions before giving up:

  • Talk to your lender. Tell your lender what’s going on. Is it a temporary set back, or can you not see a way forward for the rest of the loan term? If it’s temporary, your lender might defer some of your payments or propose another solution. If it’s permanent, it may adjust the length of your loan or suggest an alternative idea.
  • Ask friends and family for support. While borrowing money from family isn’t always ideal, it may be your best—or only—option when facing a loan default. Make sure you understand how much you owe on the loan and determine how much you need to borrow. Then, introduce the idea to a supportive friend or family member, agree to repayment terms and formalize the agreement.
  • Inquire with your employer. Likewise, some employers have programs in place to assist team members with financial hardship. If you’re unsure of whether this is an option, contact your company’s human resources department to find out.
  • Seek credit counseling. Sometimes, the lender just isn’t willing to work with you and you don’t have any other sources of funds. If that’s the case, a good option is to seek help from the nonprofit National Foundation for Credit Counseling (NFCC), which offers real help from live counselors for free—or at least at a reasonable cost.

How to Get Out of Personal Loan Default

Sometimes it’s too late to prevent your loan from going into default. That’s unfortunate, but again, you’re not out of options and you have legal protections.

In this case, you may also want to contact a debt counselor from the NFCC. They can act as a go-between for you and your creditors to come up with a debt management plan that brings you back on track. Be wary of for-profit debt settlement companies, though, as they may charge high fees and bring unintended tax consequences.

If it’s been a long time—years—since you made a payment, it might be time to read up on your state’s statute of limitations. At some point after default, debt collectors can’t sue you for the debt, even if you still have a hefty scar on your credit report. In this case, it can be helpful to consult with a debt attorney, as they can advise you on your options and legal protections. And, if you are sued for the debt, a skilled attorney can help you through that process too.

As tough as it is, you can still overcome a personal loan default. Negative marks fall off of your credit report after roughly seven years, and it’ll be as if it never happened—at least credit-wise. In the meantime, you can take other steps to better your financial situation such as saving up an emergency fund, increasing your income or checking your spending habits so that next time, you won’t even need a personal loan.

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Letter: Vote for Kiesha Preston | Letters

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The residents of Roanoke, Virginia, need to get out of the box of voting based on party affiliation. It’s time to vote for the best candidate to do the job.

Kiesha Preston is running as an independent and is the best choice for Roanoke City Council. When she was only three years old, she was troubled because a local Kroger store removed the kiddie carts. She asked me how to get them back so she could shop beside me. I told her to go to the manager and she did. She stated her case, and a few weeks later those kiddie carts were back in the store.

Kiesha also has presented a bill to Congress that was approved. The Virginia Domestic Violence Victims Protection Act prevents domestic violence victims from not being able to rent an apartment because of bad credit as a result of their abuser ruining their credit.

These are but two examples of Kiesha’s tenacity and getting results. We need people on council who have no agenda and are truly willing to work for the least of us.

Kiesha is not intimidated by those in power and will hold her own to help those who cannot help themselves. This is why she is the right person to get the job done.

Please do not be discouraged because you are tired of the same old same old where parties are concerned. You have another choice so please vote for Kiesha Preston. She has been working tirelessly on behalf of the people without being elected to an official office. Just imagine what she can do once she is officially on City Council.

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This One Credit Card Will Get You the Most Cash Back Right Now

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Let’s admit it, choosing the right credit card can be a stressful process. There are so many variables to consider—from annuals fees to credit score requirement—not to mention the various rewards and benefits each card offers, and how those align with your lifestyle and spending habits. Then there are those hidden fees and interest rates you have to reckon with. In other words, it takes a lot of work to make a truly informed decision when it comes to choosing a credit card that’s right for you. Perhaps a good cash back program is high on your credit card priority list because, well, who doesn’t like some extra money in their pocket?

To help you decide on the credit card that is going to get you the most cash back, the experts at personal finance site WalletHub compared more than 1,500 current credit card offers. From that large pool, they narrowed down the field to the cards that offer cash back rewards, comparing those offers based on initial bonuses, rewards earnings rates, annual fees, and more. From that analysis, here are the best credit cards that will get you the most cash back right now. And for more money matters, check out This Is the State Where Your Money Is Worth the Least.

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Alliant Cashback Visa Signature Credit Card

Best for: Cash back on all purchases

Cash-back rate: 2.5 percent

Annual fee: $0.00 for the first year; $99.00 after that

What kind of credit you need to get one: Excellent

Learn more about the Alliant Cashback Visa Signature credit card here.

If you are worried about having buyer’s remorse after choosing a credit card, put that into perspective by checking out What You’re More Likely to Regret Than Anything Else You Do.

7

Discover It

Best for: People with bad credit

Cash-back rate: 1-2 percent

Annual fee: $0.00

What kind of credit you need to get one: Bad

Learn more about the Discover It credit card here.

6

U.S. Bank Cash+ Visa Signature Card

Best for: Cash bonus for good credit ($200.00)

Cash-back rate: 1-5 percent

Annual fee: $0.00

What kind of credit you need to get one: Good

Learn more about the U.S. Bank Cash+ Visa Signature Card here.

And to make sure you have money to pay off those monthly bills, avoid The Biggest Career Mistake You’ll Ever Make, According to Experts.

5

Chase Freedom Unlimited

Best for: No APR on purchases

Cash-back rate: 1.5-5 percent

Annual fee: $0.00

What kind of credit you need to get one: Good

Learn more about the Chase Freedom Unlimited credit card here.

And for more things that will help you and your family stay on the right financial track, check out The No. 1 Sign You Shouldn’t Buy That House, According to Realtors.

4

Capital One QuicksilverOne Cash Rewards Credit Card

Best for: People with limited-to-fair credit and looking for low annual fee

Cash-back rate: 1.5 percent

Annual fee: $39.00

What kind of credit you need to get one: Fair

Learn more about Capital One QuicksilverOne Cash Rewards Credit Card here.

3

Citi Double Cash Card—18 month BT offer

Best for: Flat-rate rewards

Cash-back rate: 2 percent

Annual fee: $0.00

What kind of credit you need to get one: Excellent

Learn more about the Citi Double Cash Card here.

2

Capital One Savor Cash Rewards Credit Card

Best for: Dining and entertainment

Cash-back rate: 1-4 percent

Annual fee: $95.00

What kind of credit you need to get one: Good

Learn more about the Capital One Savor Cash Rewards Credit Card here.

1

Blue Cash Preferred Card from American Express

Best for: Most cash back overall

Cash-back rate: 1-6 percent

Annual fee: $0.00 for the first year; $95.00 after that

What kind of credit you need to get one: Good

Learn more about Blue Cash Preferred Card from American Express here.

And for more helpful information delivered to your inbox, sign up for our daily newsletter.

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Possible Raises Series B and Moves Fully Remote | State

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SEATLLE, Oct. 20, 2020 /PRNewswire/ — Possible raises $11 million in new equity funding to expand the team and to provide additional products for its customers. Union Square Ventures led the round, with participation from existing investors Canvas Ventures, Unlock Venture Partners, Columbia Pacific Advisors, Union Bay Partners, Tom Williams, and FJ Labs. The company has also secured $80 million in new debt financing from Park Cities Advisors.

Furthermore, the company is now fully remote and recently onboarded software engineers from across the US and the globe. Possible is committed to distributed work and actively recruiting for a number of other remote roles.

Possible provides friendly access to capital and a simple way to build credit for people who otherwise would get a payday loan or get hit with a bank overdraft fee. The company uses real-time financial data, rather than a credit score, to qualify customers and provide funds instantly through its iTunes and Android apps. Unlike payday loans or overdraft fees, Possible loans are paid back in small installments over multiple pay periods to allow customers to catch their breath. By reporting on-time payments to the credit bureaus, Possible enables its customers to build credit history and eventually qualify for cheaper, longer term financial products. On average, customers with low credit scores see their scores increase by 70 points within 4 months.

Tony Huang, Possible’s CEO explains, “So many people who live paycheck to paycheck can’t afford to build credit history. We’re helping them do it for the first time while providing them with a friendlier and more affordable small-dollar loan.”

Since launching in June 2018, Possible’s given out loans to hundreds of thousands of customers, helping meet short-term cash needs while building credit history or establishing credit for the first time. These customers, often with bad credit or no credit history, are underserved by traditional banks. Possible fills that gap and provides financial access to those who need it most while giving them the means to climb their way out.

Gillian Munson, Partner at Union Square Ventures, explains the thesis behind their new investment, “Through tech innovation, data-driven insights, and a focus on the customer, Possible is well on its way to winning the hearts and minds of both consumers and regulators alike, and building a trusted brand that endures.”

A 2019 Experian study shows 34.8% of consumers are subprime and can’t access money when they need it. They pay $106 billion in punitive fees each year to the existing financial system for short-term credit products. These consumers are trapped in predatory debt cycles of payday loans and overdraft fees without the means to rebuild their credit or improve their financial health. While there has been a number of new tech-enabled products in this space, most lead to similar debt cycles and don’t address the harder issue of improving long-term financial health. That’s where Possible comes in.

Since the company is now fully remote, Possible is actively hiring talent across the globe. Tyler, Possible’s CTO, explains, “Being fully distributed allows us to access the talent pool of the entire world. Our success so far is a reflection of the quality of our people, and we believe hiring globally will allow us to find exceptional people to join us in achieving our mission.”

About Possible

Possible is a fintech company based in Seattle, Washington. The company provides a friendlier and easier way for customers to access capital while also building credit history and improving long-term financial health.

About Union Square Ventures

Union Square Ventures is a thesis-driven venture capital firm based in New York City. USV manages over $1 billion in capital across seven funds and focuses investments in portfolio companies with the potential to transform important markets.

About Park Cities Advisors LLC

Park Cities Advisors LLC (“PCA”) is a privately held, SEC-registered alternative credit manager based in Dallas, Texas. PCA is focused on private lending across the specialty finance and FinTech sectors and provides debt capital to companies across a variety of industries through asset-based financing transactions.

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