{"id":759241,"date":"2019-01-10T21:39:10","date_gmt":"2019-01-11T02:39:10","guid":{"rendered":"https:\/\/www.finder.com\/ca\/?p=759241"},"modified":"2025-03-03T14:46:35","modified_gmt":"2025-03-03T19:46:35","slug":"what-happens-personal-loan-default","status":"publish","type":"post","link":"https:\/\/www.finder.com\/ca\/personal-loans\/what-happens-personal-loan-default","title":{"rendered":"What happens if I default on a personal loan?"},"content":{"rendered":"<p>Not only is defaulting on a personal loan expensive, it can also do some serious damage to your credit score. However, being informed can help you get back on the path to financial wellness. We break down what defaulting on your loan means, its consequences and what to do if you&#8217;re about to miss a payment or already have.<\/p><div class=\"luna-card luna-card--alt\"><div class=\"luna-card__block\"><h4>Jump to...<\/h4><div class=\"u-grid\"><div class=\"u-grid__col u-1\/2@s\"><ul class=\"list-10\"><li><a class=\"scroll\" href=\"#when\">When is a personal loan considered in default?<\/a><\/li><li><a class=\"scroll\" href=\"#what\">What happens if I miss one payment?<\/a><\/li><li><a class=\"scroll\" href=\"#5\">5 consequences of defaulting on a loan<\/a><\/li><\/ul><\/div><div class=\"u-grid__col u-1\/2@s\"><ul class=\"list-10\"><li><a class=\"scroll\" href=\"#avoid\">How to avoid defaulting on a loan<\/a><\/li><li><a class=\"scroll\" href=\"#default\">Here&#8217;s what to do if your loan is in default<\/a><\/li><li><a class=\"scroll\" href=\"#faq\">Frequently asked questions<\/a><\/li><\/ul><\/div><\/div><\/div><\/div><h3><a id=\"when\"><\/a>When is a personal loan considered in default?<\/h3><p>It depends on your loan type, the lender and the terms of your agreement. Many personal loan contracts consider your loan to be in default 30 days after you miss a repayment. Some contracts give borrowers 60 or 90 days before it&#8217;s considered in default.<\/p><p>Often, a lender won&#8217;t report a repayment as late to a credit bureau until around 30 days after the due date. This means that most of the time, any repayment under 30 days late won&#8217;t hurt your credit score. To know your loan&#8217;s specific terms for default, check your loan contract or contact your lender.<\/p><blockquote><p>The longer you wait to make your repayment, the worse it is for both your finances and your credit score.<\/p><\/blockquote><p><a id=\"what\"><\/a><div class=\"did-you-know u-bg--sky-subtle u-rounded--lg\" data-component=\"did-you-know\">\n        <div class=\"did-you-know__block\">\n        <h4 class=\"did-you-know__title\">\n            <span class=\"did-you-know__title-icon\">\n                <svg width=\"32\" height=\"32\" viewbox=\"0 0 32 32\" fill=\"none\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\">\n                    <circle cx=\"16\" cy=\"16\" r=\"12\" fill=\"#00B2FF\"\/>\n                    <path d=\"M17.5 22.5C17.5 22.7967 17.412 23.0867 17.2472 23.3334C17.0824 23.58 16.8481 23.7723 16.574 23.8858C16.2999 23.9993 15.9983 24.0291 15.7074 23.9712C15.4164 23.9133 15.1491 23.7704 14.9393 23.5607C14.7296 23.3509 14.5867 23.0836 14.5288 22.7926C14.471 22.5017 14.5007 22.2001 14.6142 21.926C14.7277 21.6519 14.92 21.4176 15.1667 21.2528C15.4133 21.088 15.7033 21 16 21C16.3978 21 16.7794 21.158 17.0607 21.4393C17.342 21.7206 17.5 22.1022 17.5 22.5ZM16 9C13.2425 9 11 11.0188 11 13.5V14C11 14.2652 11.1054 14.5196 11.2929 14.7071C11.4804 14.8946 11.7348 15 12 15C12.2652 15 12.5196 14.8946 12.7071 14.7071C12.8946 14.5196 13 14.2652 13 14V13.5C13 12.125 14.3463 11 16 11C17.6538 11 19 12.125 19 13.5C19 14.875 17.6538 16 16 16C15.7348 16 15.4804 16.1054 15.2929 16.2929C15.1054 16.4804 15 16.7348 15 17V18C15 18.2652 15.1054 18.5196 15.2929 18.7071C15.4804 18.8946 15.7348 19 16 19C16.2652 19 16.5196 18.8946 16.7071 18.7071C16.8946 18.5196 17 18.2652 17 18V17.91C19.28 17.4913 21 15.6725 21 13.5C21 11.0188 18.7575 9 16 9ZM29 16C29 18.5712 28.2376 21.0846 26.8091 23.2224C25.3807 25.3603 23.3503 27.0265 20.9749 28.0104C18.5995 28.9944 15.9856 29.2518 13.4638 28.7502C10.9421 28.2486 8.6257 27.0105 6.80762 25.1924C4.98953 23.3743 3.75141 21.0579 3.2498 18.5362C2.74819 16.0144 3.00563 13.4006 3.98957 11.0251C4.97351 8.64968 6.63975 6.61935 8.77759 5.1909C10.9154 3.76244 13.4288 3 16 3C19.4467 3.00364 22.7512 4.37445 25.1884 6.81163C27.6256 9.24882 28.9964 12.5533 29 16ZM27 16C27 13.8244 26.3549 11.6977 25.1462 9.88873C23.9375 8.07979 22.2195 6.66989 20.2095 5.83733C18.1995 5.00476 15.9878 4.78692 13.854 5.21136C11.7202 5.6358 9.76021 6.68345 8.22183 8.22183C6.68345 9.7602 5.63581 11.7202 5.21137 13.854C4.78693 15.9878 5.00477 18.1995 5.83733 20.2095C6.66989 22.2195 8.07979 23.9375 9.88873 25.1462C11.6977 26.3549 13.8244 27 16 27C18.9164 26.9967 21.7123 25.8367 23.7745 23.7745C25.8367 21.7123 26.9967 18.9164 27 16Z\" fill=\"#232320\"\/>\n                <\/svg>\n            <\/span>\n            <span class=\"did-you-know__title-text\">What happens if I miss one payment?<\/span>\n        <\/h4>\n        <div class=\"did-you-know__content\">\n            <p>Your loan won&#8217;t necessarily be in default if you&#8217;re late and you might not even have to pay a fee. Some lenders offer a grace period before a late payment charge kicks in \u2013 typically around 10 to 15 days, however this is not always the case.<\/p><p>After the grace period, you&#8217;ll be charged a fee. These fees can add up quickly and are often expressed as a percentage of the repayment due, usually around 5%. Some lenders charge a flat fee of around $15 to $50, while others charge extra interest, instead of a fee.<\/p><p>No matter which method your lender uses, it&#8217;s going to be expensive.\n        <\/div>\n    <\/div>\n<\/div>\n<h3><a id=\"5\"><\/a>5 consequences of defaulting on a personal loan<\/h3><p>A personal loan default can affect your life in several different ways. Many people start getting lots of phone calls from debt collectors after they default and some even face legal action from their lender. Here are five things that might happen if you don&#8217;t make that repayment within 30 days of its due date.<\/p><h4>1. Additional fees<\/h4><p>Most lenders charge late fees \u2014 for each repayment you miss, you&#8217;ll have to pay a late fee. Each time your lender unsuccessfully attempts to withdraw from your bank account, you&#8217;ll have to pay a non-sufficient funds fee (NSF).<\/p><p>As we mentioned earlier, some lenders offer a grace period before these fees kick in. However after that&#8217;s over, you&#8217;ll be charged a late payment fee either expressed as a percentage, a flat fee or an additional interest payment. Non-sufficient funds fees are almost always a fixed, one-time fee. Like late fees, these typically range from $15 to $50 and are often the same amount as the late fee if it&#8217;s fixed.<\/p><p>If you think you&#8217;re going to miss a repayment, you might want to stop automatic repayments. That way, your lender won&#8217;t try to unsuccessfully access your bank account and you&#8217;ll only pay a late fee (instead of both a late fee and a non-sufficient funds fee).<\/p><h4>2. Lower credit score<\/h4><p>Your repayment history is an important factor in your credit score. Even missing one repayment can significantly lower your score and go on your credit report for up to six years, while defaults typically stay on your credit report for seven years.<\/p><h4>3. Harder to qualify for future credit<\/h4><p>Having a default on your credit report tells a lender that you haven&#8217;t always honoured your contracts and might not be a responsible lender. Many reputable lenders won&#8217;t work with anyone who has defaulted recently. Even if a lender will, having a bad mark on your credit report can make it difficult for you to qualify for competitive rates on personal loans, credit cards, mortgages, car loans and any other type of financing. In turn, you&#8217;ll pay excruciatingly high interest rates that might not be affordable and ultimately throw you into a spiral of ongoing debt.<\/p><h4>4. Lose your collateral<\/h4><p>Thought you&#8217;d save on interest by taking out a secured loan? That collateral is no longer yours once you default on your loan. If you used your car or another possession as collateral, your lender will send someone to collect it. If you backed your loan with a bank account, then it&#8217;ll collect whatever funds you have in it up to the amount that you owe.<\/p><h4>5. Garnished wages<\/h4><p>After your lender sends your loan to collections, it might file a lawsuit and obtain a judgement from court to garnish your wages. If it&#8217;s successful, it&#8217;ll take funds directly from your paycheques and tax refunds until you&#8217;ve paid off your loan plus any interest. Wages can be garnished in all provinces and territories across Canada, except for New Brunswick.<\/p><p>How much your lender can take from your wages depends on the province or territory you reside in. Low limits typically sit around 30% of your wage, while higher limits tend to sit around 50%. In British Columbia for example, lenders can garnish 30% of your monthly salary, while in Alberta, you get to keep the first $800 you make and lenders can garnish 50% of your income when you make $800 to $2400. Any income received above $2400 in Alberta can be 100% garnished.<\/p><p>It&#8217;s important to note there are many rules surrounding garnished wages. For example, if you&#8217;re self-employed, owe child support or owe the CRA money, any provincial or territorial limits on the amount of your wage that can be garnished likely won&#8217;t apply to you. Garnishing wages is also extremely common in Canada, so it&#8217;s something you&#8217;ll want to be aware of if you think you&#8217;re going to have trouble repaying your loan.<\/p><h3><a id=\"avoid\"><\/a>Worried you might default on your personal loan? Here&#8217;s how to avoid it<\/h3><p>Fortunately, there are steps you can take to prevent your loan from going into default. If you think you&#8217;re going to miss your next repayment, you might want to do some or all of the following:<\/p><ul class=\"list-7\"><li><strong>Contact your lender.<\/strong> Calling or visiting your lender in person might be the fastest way to alert your lender that you might have trouble making a repayment. Many lenders are willing to work with borrowers by adjusting your loan term to lower your repayments or taking other steps to make sure you don&#8217;t miss a repayment.<\/li><li><strong>Ask your family and friends.<\/strong> In times like these, your social safety net might come in handy. Explain the situation to a relative you trust and ask if they can help you out. You can even set up a formal contract through online programs like Loanable.<\/li><li><strong>Talk to your employer.<\/strong> Some companies might be willing to give you a pay advance if you&#8217;re in a tight spot with a lender. Ask your human resources department what your employer&#8217;s policy is for paycheque advances.<\/li><li><strong>Talk to a credit counsellor.<\/strong> Struggling with your personal finances in general? Going to a credit counselling agency may help you get back on track and strategize about how to avoid missing a repayment.<\/li><\/ul><h3><a id=\"default\"><\/a>Already in default? Here&#8217;s what to do next<\/h3><p>The sooner you can get out of default, the faster you&#8217;ll be able to start building your credit. While that negative mark will stay on your credit report for six or seven years, you can start taking steps to regain your financial health right away.<\/p><ul class=\"list-4\"><li><strong>Pay your late payment and fees.<\/strong> Just missed the cutoff for late payments? Try to pay off that late payment and fee before it goes to collections. If you let it sit too long, your lender could sue you for repayment or file a lawsuit to garnish your wages.<\/li><li><strong>Negotiate a settlement.<\/strong> Already in collections? You might be able to negotiate your debt down to a large one-time payment. You can <a href=\"https:\/\/www.finder.com\/ca\/debt-consolidation#negotiate\" target=\"_blank\" rel=\"noopener\">do this on your own<\/a> through a process called debt consolidation or you can hire <a href=\"https:\/\/www.finder.com\/ca\/personal-loans\/debt-consolidation-loans\/debt-relief-companies\" target=\"_blank\" rel=\"noopener\">a debt settlement company<\/a> to do it for you \u2014 though you&#8217;ll want to make sure you&#8217;re working with a reputable organization.<\/li><li><strong>Get credit counselling.<\/strong> Credit counselling can also help after you&#8217;ve already defaulted on your loan by helping you come up with a debt management plan for paying off your loan and staying out of debt.<\/li><\/ul><h3>Bottom line<\/h3><p>Defaulting on your personal loan can have serious consequences that follow you around for a long time. Whether you&#8217;re about to default on your loan or already have, it&#8217;s crucial to take action as soon as possible. Aside from the fees and the potential legal consequences, the longer you let your loan sit unpaid, the more you&#8217;ll owe in interest.<\/p><h3><a id=\"faq\"><\/a>Frequently asked questions<\/h3><ul class=\"luna-accordionGroup accordionGroup\"><li class=\"luna-accordion\" data-accordion=\"accordion\">\n  <div class=\"luna-accordion__summary\">\n    <h4 class=\"luna-accordion__heading\">\n      <button class=\"luna-accordion__action collapsed\" aria-expanded=\"false\" aria-controls=\"accordion0000000000\" data-toggle=\"collapse\" data-target=\"#accordion0000000000\">\n        <span class=\"luna-accordion__title\">Do I have to repay a loan if I file for bankruptcy?<\/span>\n        <svg class=\"luna-icon\" aria-hidden=\"true\">\n          <use xlink:href=\"#chevron-down\" data-accordion-icon=\"show\"><\/use>\n          <use xlink:href=\"#chevron-up\" data-accordion-icon=\"hide\" class=\"is-hidden\"><\/use>\n        <\/svg>\n      <\/button>\n    <\/h4>\n  <\/div>\n  <div class=\"luna-accordion__details collapse\" aria-hidden=\"true\" id=\"accordion0000000000\" data-accordion=\"details\">\n    <div class=\"accordionContent\"><p>It usually depends on the type of loan. If you have a secured loan and you plan to keep the asset that you have used as collateral, you will need to pay the loan back. If your loan is unsecured or you&#8217;re willing to lose the asset for your secured loan, after your bankruptcy is discharged, you will usually not have to pay back the loan.<\/p><\/div>\n  <\/div>\n<\/li><li class=\"luna-accordion\" data-accordion=\"accordion\">\n  <div class=\"luna-accordion__summary\">\n    <h4 class=\"luna-accordion__heading\">\n      <button class=\"luna-accordion__action collapsed\" aria-expanded=\"false\" aria-controls=\"accordion0000000001\" data-toggle=\"collapse\" data-target=\"#accordion0000000001\">\n        <span class=\"luna-accordion__title\">How do I find a legit credit counselling agency?<\/span>\n        <svg class=\"luna-icon\" aria-hidden=\"true\">\n          <use xlink:href=\"#chevron-down\" data-accordion-icon=\"show\"><\/use>\n          <use xlink:href=\"#chevron-up\" data-accordion-icon=\"hide\" class=\"is-hidden\"><\/use>\n        <\/svg>\n      <\/button>\n    <\/h4>\n  <\/div>\n  <div class=\"luna-accordion__details collapse\" aria-hidden=\"true\" id=\"accordion0000000001\" data-accordion=\"details\">\n    <div class=\"accordionContent\"><p>There are <a href=\"https:\/\/www.canada.ca\/en\/financial-consumer-agency\/services\/debt\/debt-help.html#toc0\" target=\"_blank\" rel=\"noopener\">a list of reputable websites and associations here<\/a> that can connect you with a trustworthy credit counselling agency near you.<\/p><\/div>\n  <\/div>\n<\/li><li class=\"luna-accordion\" data-accordion=\"accordion\">\n  <div class=\"luna-accordion__summary\">\n    <h4 class=\"luna-accordion__heading\">\n      <button class=\"luna-accordion__action collapsed\" aria-expanded=\"false\" aria-controls=\"accordion0000000002\" data-toggle=\"collapse\" data-target=\"#accordion0000000002\">\n        <span class=\"luna-accordion__title\">I make money off of tips. Can my lender garnish my wages?<\/span>\n        <svg class=\"luna-icon\" aria-hidden=\"true\">\n          <use xlink:href=\"#chevron-down\" data-accordion-icon=\"show\"><\/use>\n          <use xlink:href=\"#chevron-up\" data-accordion-icon=\"hide\" class=\"is-hidden\"><\/use>\n        <\/svg>\n      <\/button>\n    <\/h4>\n  <\/div>\n  <div class=\"luna-accordion__details collapse\" aria-hidden=\"true\" id=\"accordion0000000002\" data-accordion=\"details\">\n    <div class=\"accordionContent\"><p>Yes, typically most forms of income, including tips, can be garnished by a lender.<\/p><\/div>\n  <\/div>\n<\/li><\/ul>","protected":false},"excerpt":{"rendered":"<p>Find out about potential consequences of defaulting on a personal loan and learn how to deal with missed repayments.<\/p>\n","protected":false},"author":392,"featured_media":759245,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"apple_news_api_created_at":"","apple_news_api_id":"","apple_news_api_modified_at":"","apple_news_api_revision":"","apple_news_api_share_url":"","apple_news_cover_media_provider":"image","apple_news_coverimage":0,"apple_news_coverimage_caption":"","apple_news_cover_video_id":0,"apple_news_cover_video_url":"","apple_news_cover_embedwebvideo_url":"","apple_news_is_hidden":"","apple_news_is_paid":"","apple_news_is_preview":"","apple_news_is_sponsored":"","apple_news_maturity_rating":"","apple_news_metadata":"\"\"","apple_news_pullquote":"","apple_news_pullquote_position":"","apple_news_slug":"","apple_news_sections":[],"apple_news_suppress_video_url":false,"apple_news_use_image_component":false,"footnotes":""},"categories":[407],"tags":[5441],"asset_tag":[],"class_list":["post-759241","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-personal-loans","tag-latest-2"],"apple_news_notices":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.9 (Yoast SEO v24.9) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What happens if I default on a personal loan? | Finder Canada<\/title>\n<meta name=\"description\" content=\"Five potential consequences of defaulting on a personal loan. 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