Taking a loan might sound like a great idea if you want to buy the latest smartphone or to go on a holiday. ‘I will repay it in a few months and everything will be ok’, you might say.

It is normal that everyone wants to live better. The numerous types of credit products on the market let many people boost their lifestyle, but also land others in a big trouble. Taking a loan does not mean that you have just received a gift from the bank. It is an obligation you will need to fulfill or it can ruin your life.

PHONE HARASSMENT

If you are a couple of days late, you will probably start to receive calls from your lender. Depending on whether you owe a bank, a moneylender or a loan shark, these may vary from polite calls to outright threats.

What to do: If you know you will be late with your payment, contact your lender and ask if it could be postponed. If you have regular difficulties with repayments, your lender may offer to restructure your loan. Try to be cooperative. Do not avoid phone calls; trying to hide will worsen your situation. If you are more than 30 days late and you do not make any attempts to pay back your loan, your creditor might take more severe actions against you.

COLLECTION PROCEDURES

If you do not repay your obligations:

  • Secured loan. If your loan is secured, the collateral will be seized by the lender. This might sound like the worst case scenario, but it is a rational one in the case that you are unable to satisfy your obligations.
  • Unsecured loan: If you default on an unsecured loan, the bank will need to write the debt off. However, a lot of serious consequences will follow.
  • If you owe a moneylender, your debt has probably increased several times because of the high interest rate  and late penalties. The moneylender will probably hire a debt collection agency which will keep chasing you.
  • All loan types: your credit rating may be negatively affected.

BANKRUPTCY

If your debt exceeds $10 000 and you are unable to pay up, you can undergo bankruptcy. If a bankruptcy application is submitted to the court and your debt amounts to under S$100, 000, the court shall refer the debtor to the Insolvency and Public Trustee’s Office (IPTO) for an assessment of the debtor’s eligibility to enter into the Debt Repayment Scheme (DRS).

In the event of bankruptcy, an Official Assignee (OA) will take stock of your available assets and sell as many as possible to repay your creditors. You might also be required to contribute a portion of any income you are currently receiving.

Bankruptcy has other serious consequences. You cannot:

–    leave the country without your OA’s permission

–   continue to hold public office or be a company director

–    sue any party in court without the OA’s approval

Bankruptcy will also appear on your credit record. It will make it very difficult for you to take any loans, mortgages or credit cards in the future. Going bankrupt may change your lifestyle dramatically, as well as your connection with family, friends, and employers. Therefore, it is strongly recommended that you avoid bankruptcy.

NEGATIVE CONSEQUENCES

Financial mistakes can really ruin your life, no matter whether it is a few thousand dollars owed to a moneylender or a bad investment decision for millions. Here are some possible negative consequences:

EMPLOYMENT DIFFICULTIES

Any default will appear on your credit report and potential employers might request your credit report before hiring you. If you have defaulted on your loans and have not made any effort to settle them, the default will stay on your record indefinitely. Some companies might take this as a sign of irresponsible behavior. It is also nearly impossible to get a job in industries such as finance with a poor credit record.

NO ACCESS TO CREDIT

A bad credit record would limit your access to credit for the years ahead. Even if you have a stable income, you might not be able to get a mortgage forcing you to rent which prevents you from building equity in your property. Those unable to get educational loans may struggle to find better job opportunities or to obtain promotions.

BLOCKED ACCOUNTS

If you have savings in a bank account and you are in default, those funds may be seized. If the bank suspects that you have money, but simply refuse to make your loan payments, they will initiate legal proceedings. Based on the contract that you signed for a loan or credit card, you are legally obliged to pay back your debts. If you really have savings, it is a good idea to utilize those funds to repay your debt. Damaging your credit record simply isn’t worth it.