What to Do if You are in Default on your Loans

In Default on your Loans? Learn What To Do

There are many reasons you might need a loan.

Many people obtain secured loans to buy a house or car, while some people use credit cards as a way of borrowing money.

Regardless, you must stay up-to-date with all of your repayments.

When it’s time to make a monthly payment on your loans, you need to do it on time, every time.

Problems occur when you fail to make your payments.

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This can often lead to something called defaulting.

If you default on a loan it can be troublesome for your financial situation and your credit rating.

It’s something you should look to avoid, but there are steps you can take to minimize the damage if you do default.

We have some helpful advice and guidance on what you should do if you ever default on your loans.

When is a loan considered default?

A common misconception is that loans are considered default when you can no longer pay them.

On the contrary, you will default on your loans if you miss one payment or neglect a particular financial obligation.

Let’s say you have a mortgage loan, but you miss your monthly repayment.

Technically, you are now in default.

So, the simple explanation is that it refers to missed repayments on your loans.

What happens when you default on your loans?

The precise course of action depends on a few factors:


  • What type of loan is it?
  • What are your loan terms?
  • How long have you been in default?


In most cases, your loan terms state that you are in default after 30 days of missing your payment.

However, some lenders may extend this to 60, possibly even 90 days.

So, if you forget your payment and then make it the next day, nothing really happens.

A late payment may come with extra charges depending on the terms in the loan.

When your payment is reported as late, it will trigger issues with your credit rating.

Typically, the later the payment, the worse your rating will be impacted.

Naturally, this is damaging if you need to apply for more loans in the future.

Imagine you have a car loan but end up in default for a few months.

You’ve got a black mark on your credit report, lowering your score.

You spent years saving for a mortgage downpayment, but now you can’t get one because your score is so bad no lenders accept your application.

Clearly, you want to avoid all of this, which is why making payments on time is essential.

If you do miss a payment, you should receive almost instant notification of this.

As such, if you innocently forgot, you can remedy the situation right away.

What do creditors do when you are in default on loans?

Again, the exact course of action depends on the type of loan and the creditor.

For credit card debt, you have a period where there’s a chance to catch up on your payments.

If you fail, the credit card company can issue something called a notice of collection.

As the name suggests, this is where they tell you they will look to collect what you owe.

This often means a collecting agency steps in to get as much of your debt as possible.

It can include submitting a claim for wage garnishment or seeking out assets to take.

With personal or secured loans, the ramifications are simpler.

Secured loans will mean you put assets up as collateral when you applied for the loan.

In the case of a car loan, the asset is your car.

So, if you are in default and keep missing payments, the creditor can step in and seize your car.

This lets them regain some money by selling your vehicle.

In short, if you don’t take action, your creditors will.

As a result, you should try to find solutions that are more appealing to the ones above.

What to do if you are in default on your loans?

There are four main options:



You can attempt to negotiate with creditors to agree on new terms for the loan.

This may help you keep up with future payments by reducing the amount you pay each month.

Your creditor may allow this by lowering the interest rates or extending the loan length.

If you can pay off the loan, but you need some extra help, this is a good option.

Refinancing the loan is also a good idea for people with the capacity to pay it off.

A debt consolidation loan can wipe out your debts and provide you with a new loan.

The difference is that you may have more favourable terms and a lower interest rate.

Therefore, it’s easier for you to pay off. This is often helpful if your creditors don’t agree on any negotiations.

A consumer proposal is the next step for those who physically can’t repay the loan.

This is a more extreme negotiation with creditors where you lay out your terms and say this is what I can afford to pay you.

It often leads to your debts being significantly reduced, which a creditor will only agree to if they stand to lose more money should you file for bankruptcy.

A consumer proposal also helps you hold onto some of the assets you might lose in going bankrupt.

Lastly, if none of these solutions work, you may have to file for bankruptcy.

It’s not ideal, but it helps you get your creditors off you back and be free from debt.

Then, you start the process of rebuilding your finances.

Are you in default on loans? Get help today!

Being in default on your loans isn’t the end of the world.

With the right guidance, you can get out of debt and start building up your damaged credit score.

We can help you with all of your debt issues.

Contact us today, and we can book a consultation to talk about your situation and decide on the best course of action.

Call us now or fill in our online evaluation form!

Information on Consumer Proposals

Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?

Canadian Bankruptcies

How to File for Bankruptcy
What is Bankruptcy?
Bankruptcy FAQs
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?

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