Penalties for Non-Payment of a Loan

If the borrower doesn’t pay for a loan on time, this entails sanctions from the financial institutions. The debtor can be fined, charged interest, and other penalties applied under the contract. What is the threat of non-payment of loans in the US? How far may banks, pawnshops, and MFIs go in their requirements? Let’s figure it out, and take as an example loans that you can get from https://directloantransfer.com/1000-dollar-loan/ service.

Microfinance organizations (MFIs)

Loan debt to an MFI entails fines and penalties. The lender can raise the interest rate, which will increase the amount of debt. The penalty may reach 50% of the loan amount. Sanctions are individual in each organization. In case of refusal to repay the loan, the MFI goes to court or takes the following measures:

1) SMS notifications

The organization sends SMS messages to the borrowers’ numbers, which they indicated during registration. The debtor is reminded of the need to pay 2-3 days before the expiration of the contract. If the money is not received, the frequency of incoming messages from MFIs will increase.

2) Calls to relatives

Microfinance organizations may contact relatives, friends, co-workers, and neighbors of the borrower. They will receive calls with a request to influence the debtor. MFI uses the public pressure on the borrower with the help of people from his environment.

3) Letters and notifications

If the debtor does not want to pay, the creditor sends letters to his address demanding to pay off the debt.

4) Referring to collectors

A compulsory measure may be the appeal to collectors. This happens if the debt on the microloan is already large, and the client refuses to repay it. Collectors’ profile is working with problematic borrowers.

5) Going to court

Litigation takes more than one month, and the costs of the process are high. For this reason, MFIs rarely go to courts. In exceptional cases — when it comes to large debts.

Each MFI has its own non-payment and late-payment policies, so the penalties also depend on the type of loan issued. These details can be read in the customer’s agreement.

Banks

Refusal to pay the debt entails a fine and interest for the debtor charged daily. The amount of the penalty cannot be more than a prescribed amount in the agreement. Bad credit debtors usually do not respond to warnings and fines from the bank. In this case, the creditor is forced to go to court. If the court satisfies the bank’s claims, the borrower runs the risk of losing his property. The execution of punishment and confiscation are handled by bailiffs.

Pawnshops

Pawnshops provide loans with or without collateral. Before issuing money, experts will assess the collateral. The higher the value, the higher the amount of the microloan. Usually, the money is issued for 3-30 days, after which the client must return the amount taken. If he doesn’t, the pawnshop will offer to extend the contract or put your collateral on sale.