Major Causes of Loan Default

Loan

Your credit file is an important asset that you have and must be guarded jealously. Having an adverse credit rating, caused by several credit default and missed payments, can negatively affect your ability to secure credit for several years. Most people do not know the consequence of defaulting on their loan and receiving credit default until it has become too late. You can avoid falling into this trap of defaulting on your loan by understanding why people tend to have loan repayment issues and how it can be avoided. Although there are endless causes for a credit default, three of these stand out;

Unknown missed payments:

It is surprising but most people only know they have a credit default after they get declined for some form of credit. By defaulting on their credit they have had it listed on their Credit Report and this has resulted in the decline. In a lot of cases these people do not have financial issues but may only have mismanaged a bill or a service. You may have assumed that the bill has been taken care of by closing the account, but when you cancel the contract early you may be left with cancellation fees payable. Telephone contract can be anywhere between $2000-$3000 in the United States. The phone contract will most times include the cost of the mobile handset. Another popular instance where credit default is listed is when a person changes houses and there is outstanding amount owing on a service bill or phone.

Known missed payment:

In majority of cases people are very much aware that they are facing credit default, but due to financial difficulties and hardship they may find it challenging to make their commitment. People hardly do not just decide not to meet up with their financial obligations, circumstances tend to put them in such situation. Some of the situations that may put people at risk include;

– Divorce

– Sickness

– Loss of a job

– Failed business

In majority of the above named situation there is usually a loss of income, but for divorce, there is an emotional devastation which hamper how the person operates in his/her daily life.

Over commitment by high interest debts:

It is quite common for people to apply for and receive more loans than they can actually service. For instance, first time home buyers tend to spend money buying furniture and putting the house in good shape, hence they opt for large amount of unsecured, high interest debt. In situations where things do go as plan, these debts tend to pile up until it gets to a point when it becomes extremely difficult to pay back.

Being properly informed about the causes of credit defaults can save you the heart ache of receiving a credit default.

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