What Happens When I Do Not Repay My Personal Loan?

Man researching on personal loans in Singapore.
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What Happens When I Do Not Repay My Personal Loan?

checking blog post using mobile
Man researching on personal loans in Singapore.



Because of the idea that people in debt do not go to jail, many people feel that it is okay to leave their personal loans to stew and earn interest because they feel that they cannot afford to pay it. In reality, when you do not pay your personal loans, you are opening yourself up to a bigger problem that will affect the rest of your life. To give you an idea of what you can expect, this is what happens when you do not repay your personal loan.

Reason Why We Get Personal Loans

A personal loan is significantly different from a specialized home, car, and business loan from the bank. A personal loan is riskier because the bank does not have definitive proof that the loan is meant to earn money, unless you say so. Even then, they will ask for collateral in case you fail to repay your personal loan. When you do not repay your personal loan, it means you are defaulting.

What Are the Consequences When Defaulting Your Personal Loan

First off, the bank is dealing with thousands of people who have defaulted their personal loans. You are not really an important target for their wrath, but you are still in the system and will be treated as someone who has defaulted their loan.

1.    Your Credit Score Will Be Affected

Once a certain time has passed – a period bank assigns to the loans they give out – they will report you to the Credit Bureau of Singapore. This means that every bank who is in the system will know that you have an unpaid loan, therefore forfeiting your right to take a loan out from another bank or even applying for a credit card. You can still open a bank account, but if you do open it in the bank where you have a debt, they may deduct the amount of your loan from your bank account.

2.    Legal Proceedings Will Ensue

Soon after, collection agencies that are hired by the bank will send you letters of collection, telling you how much you owe, how much interest it is accruing, and telling you that you should pay your debt as soon as possible.

3.    The Bank Will Repossess Your Collateral

If your personal loan has accrued an immense amount of interest, your collateral will be forfeited to the bank. The only way you can reclaim it is through the bank’s regular auctions. If you are not able to pay your debt, it is highly unlikely that you can buy your collateral back from the bank during these auctions.

What You Can Do to Repay Your Debt?

Defaulting is not the end of the world. It simply means that you are declaring your inability to pay your personal loan. It is not uncommon for banks to deal with defaults.

When this happens, it is time to sit down with the bank to work out a repayment plan. This will help you restructure the payment process.

Here are some of your options:

a.    Ask for a reduced interest rate.

Some banks allow this so that you can pay your debt immediately. Chasing you with lawyers is substantially more expensive than just giving you a better option to pay your personal loan. You can either receive a reduced interested rate or the bank will allow you to pay the rest of your debt without adding any interest, thereby settling on an installment plan that will not increase the amount of your debt.

b.    Develop a loan repayment plan that is in line with your current income.

Some banks will allow you to pay a monthly installment that is fair enough that you can live day to day without worrying about food and lodging. They will let you pay what you can because at least, they will get their money back.

c.    Ask to officially default the loan – declare bankruptcy

This is the most extreme outcome and can seriously impact your life, especially in the future.

Banks are not evil; nor are the people who run away from debts. If you want to avoid the major consequences of not paying for personal loan, do your calculation right before you even borrow to ensure that the unexpected does not happen


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