Unexpected situations—like a job loss, medical emergency or death in the family, or calamity—can put even the most responsible borrowers in a tight spot, making it extremely hard to make loan payments on time.
Is your loan in danger of going into default? Defaulting on a loan comes with serious financial consequences. Not to mention that you’ll spend stressful days and sleepless nights thinking about how to get yourself out of the sticky situation.
You don’t want to reach that point—and you can keep it from happening. Understand how loan default can affect your finances.
Failure to make monthly loan payments for a certain period (as specified in the loan’s terms and conditions) results in loan default. Not to be confused with loan delinquency (which happens as soon as you miss a mortgage payment), a default is declared when your loan remains delinquent for a long time.
The time before a loan goes into default varies from one lender to another. Generally, borrowers in the Philippines have a maximum grace period of 90 days or three months to settle their outstanding balance before their loans become in default. That’s the case for Pag-IBIG multi-purpose loans and housing loans.
Some banks have shorter grace periods before declaring a loan default. Citibank, for instance, places a personal loan in default if it’s unpaid for at least 60 days.
If you default on your loan payments, your credit history suffers. Banks report unpaid loan accounts to the credit bureaus, which will compute your credit score. With a bad credit history, you’ll get a lower credit score that hurts your chance to get a loan or a credit card in the future. If you’re lucky to be approved for one, you might be given a high interest rate.
For the specific consequences of stopping your loan payments, it’s best to ask the bank or government agency that issued it. You can also find the information in your loan’s terms and conditions. Just look for the section about loan default. When you’re on the verge of defaulting on your loan, you’ll find the fine print—what with its tiny and lengthy text—a worthy read.
Before worse comes to worst, contact your lender to explain your situation and negotiate for adjusting your monthly mortgage until you can return to fully repaying your loan again. If you have an SSS loan that has defaulted or is about to default, consider availing of the loan restructuring program to ease up your loan payments.