(Newswire.net — December 5, 2017) — The main reason for which people like unsecured loans a lot more than secured ones is because the latter type involves collateral. Collateral are assets that will be taken by the lender in the eventuality of you defaulting on your loan. However, what happens if you default on an unsecured loan? Does the lender just count their losses and go away? Of course not! The scary thing is that you don’t know exactly how they’re going to hit you, but they will.
This is the main misconception that people have about unsecured loans. They think that because you haven’t signed off on any of your assets to be used as collateral, things can’t be taken away from you. That is false and you should know that in most cases, the effects of defaulting on an unsecured loan are even rougher than in the secured loan scenario.
What can the lender do?
Your main question is probably “what can the lender do if I default on an unsecured loan?”. If that’s the case, they can and most likely will take legal action against you. More specifically, they will sue your business in order to gain compensation for their lost investment. Defaulting on a loan can trigger a long chain of legal complications.
When it comes to unsecured business loans bad credit owners usually direct their attention towards the secured alternative, simply because they can’t afford an unsecured one. However, regardless of your credit score, you need to know that there will be action takes against you even in a personal matter if you default.
Personal legal action
In many situations, in order to agree upon a loan, the lender will have the business owner co-sign the loan with their business. This means that in the case of defaulting, the lender can go after your personal belongings as well. They can put a lien on your accounts, real estate, cars and pretty much anything else of value you have.
In other words, if the lender isn’t paid as per your loan agreement, repercussions will occur regardless of whether or not the loan was secured. It’s just a matter of how exactly those repercussions will play out. Many think that secured loans are actually safer, because at the end of the day, you know exactly what they’re going to take.
The important of not defaulting
While knowing the consequences is important, you should always strive to actually pay on time. These consequences should be a motivation for you to fulfill your end of the bargain, not to figure out which road will be the less painful.
If your credit history, financial needs or overall financial situation is so bad that you’re just going to assume that you will simply default on your loan, you should probably not take out a loan at all. The point of a loan is to better your financials, but defaulting will get you into even more trouble.