9. Consequences of Default
Defaulting on a loan has severe consequences that can affect your financial health and career.
Credit Damage
Defaulting will severely damage your credit score, making it difficult to qualify for other forms of credit, such as a mortgage or car loan. A poor credit score can also lead to higher interest rates and less favorable terms on any credit you can secure, further straining your financial situation.
Wage Garnishment
The government can garnish your wages and tax refunds to recover the defaulted amount, adding to your financial woes. Wage garnishment means a portion of your paycheck is withheld and sent directly to the lender, reducing your take-home pay and making it more challenging to manage your monthly expenses.
Legal Consequences
In some cases, defaulting on a loan can lead to legal action. Lenders may file lawsuits to recover the unpaid amount, which could result in court judgments against you. This adds legal fees to your debt and can lead to liens against your property, further complicating your financial recovery.