Short-term loans
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It used to be that your local bank or credit union was the only place to get a loan. But with the rise of online lenders, it’s easy to get financing without leaving your home.
However, online lending can have its cons: these lenders may not stick around as long. Some online lenders go out of business due to poor business plans, while others may get shut down for legal reasons. Many are startups and simply can’t make it through those tough first few years.
We take a look at what happens when a lender goes out of business and the steps you should take.
Yes. When you borrow money, you sign a legal contract containing specific terms and conditions related to your repayments, rates and loan term. The legal status of your contract doesn’t change when your lender shuts down.
In fact, you might not notice much of a difference in your repayment experience after a lender goes out of business. That’s because your debt is typically up for sale or handed off to a liquidation firm when a lender closes. Another company simply buys or acquires your loan and starts receiving your repayments. You’re still on the hook to make your loan repayments — with the same APR and repayment terms.
Your new lender will inevitably notice and this can seriously damage your credit score. Depending on why your original lender shut down, it’s possible that your new lender will be even better at keeping track of your repayments.
Payments that are more than 30 days late can show up as delinquencies on your credit report, sometimes resulting in a drop of around 100 points in your score. Any defaults could follow you around for years to come, making it difficult to qualify for future loans, credit cards, mortgages and other forms of credit.
Firstly, the lender will stop funding new loans. This typically won’t affect you unless you have a line of credit you’d like to tap into or want to apply for a new loan.
After funding stops, one of three things happen:
At this point, you should receive notification from your lender or the new company you’ll be paying to. More than likely, your loan terms and conditions remain the same — unless your lender charged rates that are higher than your province or territories legal limits, in which case your rates may decrease.
If a court agrees that you were a victim of predatory lending by taking on the loan, you could receive a refund of any interest or fees you paid under the illegal conditions.
Here’s a few ways to keep on top of what you owe when a new company buys your loan:
Response | Female | Male |
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Reputable lender | 23.08% | 22.06% |
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Learning that your lender has closed its doors might scare you, but it generally won’t affect your personal finances much. You’ll still have to repay your loan, typically with the same terms and conditions. However, the details can vary by lender and situation, so reach out to your old and new lenders to find out specific next steps.
Learn more about lenders that are still up and running in our comprehensive guide to personal loans.
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