Default, with regard to a loan, simply means
that you’ve failed to make payments and have come to
a point at which the lender is going to close the loan against
you. A number of things may happen in that situation. If there
is collateral involved,
the lender may take possession of those items. If there’s
an annual balloon
payment, as with a renegotiable
rate loan, the lender may call for the balance
to be paid rather than to grant another term on the loan.
The claim could be turned over to a collection
agency. And if the lender has no other options, you could
find yourself sued in court.
If you’re faced with a default situation, one of the
worst things to do is to avoid the creditors
and hide from the problem. It’s tempting to ignore the
ringing of the telephone and to drop the bills in the trash,
but it’s not a solution. Take the initiative. Tell the
lender how much you can afford to pay, what caused the situation
and ask for help. Remember that a lender faced with a client
in default is expecting to lose money on the outstanding loan.
They may very well be willing to negotiate new terms at that
point.
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