When the Covid-19 pandemic first hit the country, virtually every sector was in shock. The pandemic was an event in history that was largely unexpected. Many sectors ended up reacting blindly without “much thinking.”
At the onset and at the peak of the pandemic, businesses shut down and millions of people lost their jobs. Hopelessness reigned all over the place and the mere thought of seeing a better tomorrow was scary.
As businesses fumbled to remain afloat, an interesting development was happening in Kenya’s financial sector. Banks went back to the drawing board and the “technical bench” scratching their heads on what would become of the loans that were in the hands of their customers.
Calls to have loans restructured were made. President Uhuru Kenyatta made a directive and the Central Bank of Kenya ordered banks to restructure loans for their customers. And they did.
The move helped save many borrowers from defaulting on their loans. But assume there was no pandemic, no restructuring and you had a personal loan, what happens if you defaulted?
Defaulting on a personal loan is not an isolated case. It happens even to the best. There are things that humans can’t just control such as pandemics, accidents, and losses. So, when it happens and you run into loan defaults, what happens?
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How does the loan default occur?
Defaulting on a personal loan occurs when you fall behind schedule in terms of payment as agreed in the loan agreement. Simply, if you fail to remit the payment in a month, you are automatically considered to be in default.
Ideally, the lender is supposed to initiate the recovery of the same at that point. But most of them are human and given that recovery of the loan might be more expensive than the loan itself, they would first call you to remind you that you have delayed in remitting the payment.
The time that is given for you to “get back on line” varies from one lender to another. Some might give up to 3 or more months before sounding an “alarm” and initiate a recovery process.
What are the consequences?
Well, when you default on a personal loan, be sure that the person who will give you a call will not be that sweet voice of a lady who called you to sign for it. And don’t expect that sweet smiling lady to be the one coming at your door to seek the recovery of the same.
Simply put, it eats into your mental health especially where you start to receive numerous distress calls, texts, and emails from the lender with some promising you some “dire consequences.”
Shuts your door for future borrowing
Once you default on a personal loan, you become a marked borrower. A dangerous one. Worst happens if your name is forwarded to the CRB.
In short, it hurts your credit score, and chances of you getting another loan in the future become slim. Nobody wants to lend to someone who “forgets” to pay back as soon as the date to start paying comes.
Your security can be taken away
This is collateral that you use to secure a loan. In the event that you fail to pay back the loan, the first thing that the lender goes for is your collateral.
If you used your title deed, the lender might seek to sell the piece of land to recover the loan. The same happens if you used your car logbook because it might be repossessed and sold to recover the loan.
Trouble to your guarantors
Guarantors are those people who “swore” that they know you and that is a “good borrower.” When you default, the lender goes for them too in an attempt to have them push you to pay. In the end, you lose the trust of your friends and the friendship.
There are many things that happen when you default on a loan. Most of them are psychological and in most cases, the impact is too huge to be undone. When it happens, do not run. Do not go into hiding.
The first thing you should do is to visit your lender and talk to them. Most banks are “human” and since they want their money back, you can always agree on terms to pay back.