Key Takeaways
- Ever wondered what happens when you default on a secured loan and unsecured loan?
- Late payments might incur minor penalties, whereas defaults are more severe and can lead to bankruptcy.
- Defaulting on secured loans like home and car loans can lead to foreclosure or repossession, respectively.
- Defaulting on unsecured loans may result in higher interest rates, credit score damage, and potential legal actions or bankruptcy.
- Prevent defaults by seeking financial advice, communicating with banks for possible repayment plans, and understanding the severe long-term impacts of defaults.
Understanding what happens when you default on a secured loan is crucial for managing financial commitments responsibly.
In Malaysia, defaulting on loans, whether secured or unsecured, carries serious financial repercussions. In this article, we’ll explore what happens when you default on different types of loans and how to address these challenges.
Late Payments vs Loan Defaults
1. Late Payments
Firstly, missing a scheduled loan payment may result in late payment charges and minor penalties.
These initial penalties are relatively minor and can often be managed without significantly damaging your credit score, provided they are addressed promptly.
2. Loan Defaults
However, loan default is a more serious issue. It occurs after consistently missing payments over an extended period or failing to meet the loan terms agreed upon.
Defaulting on a loan can lead to severe financial consequences, including potential bankruptcy, as it indicates a significant breach of financial agreements.
What Happens When You Default On A Secured Loan & Unsecured Loan in Malaysia
1. Secured Loans
To start, secured loans are financial obligations backed by collateral, meaning the borrower pledges an asset like a house or a car to guarantee the loan.
Common examples of secured loans include:
a. Home Loans
If you default on a home loan, the bank may initiate foreclosure proceedings, taking legal possession of the property to recover the outstanding debt.
Following a foreclosure, the property is often sold at auction. The sale proceeds are used to pay off the debt, consequently leaving the borrower without their home.
Some may still owe any remaining debt if the sale does not cover the full amount.
If the debt remains unsatisfied after the auction, the borrower may face bankruptcy proceedings as a further step taken by creditors.
b. Car Loans
Moreover, banks have the authority to repossess vehicles for defaulted car loans.
To retrieve the vehicle, the borrower must clear the outstanding debt and also cover any associated repossession costs, which can add to the financial strain.
2. Unsecured Loans
However, unsecured loans do not require collateral to secure them. They are approved based on the borrower’s creditworthiness and promise to repay.
Examples of these loans are:
a. Personal Loans (H4)
Banks may take measures to recover defaulted loan amounts by deducting from any credit balances in the borrower’s bank accounts.
This is particularly true if the account is held with the same bank.
b. Credit Card Loans
Additionally,defaulting on credit card payments can lead to increased interest rates and the imposition of late fees.
Such defaults are also reported to credit bureaus, which can significantly lower a borrower’s credit score.
In substantial unpaid debt cases, creditors could take legal action, which can involve court proceedings, to recover the necessary funds.
Then, prolonged non-payment can escalate to bankruptcy proceedings, especially if the debt amount is considerable.
How Can I Settle A Secured Loan in Malaysia?
If you’re facing financial difficulties, here are several steps you can take to pay off a secured loan in Malaysia.
First,engaging with financial advisors can provide you with strategies to handle debt more effectively, potentially avoiding the pitfalls of default.
Next, proactively discussing your financial difficulties and potential repayment plans or loan restructuring options with your bank can prevent the situation from escalating to default.
Ultimately,it’s crucial to be aware of the long-term effects defaulting on a loan can have on your financial health and creditworthiness.
Understanding these implications can then motivate you to seek early interventions.
Read More: What is the Cost of Starting a Business in Malaysia?
Bluebricks’ Loan and Consultancy Services
To conclude, defaulting on any loan in Malaysia can lead to severe financial consequences. Understanding these risks and proactively managing your loans with the help of services like those offered by Bluebricks can safeguard your financial stability.
As a comprehensive bank loan and debt consolidation agency in Malaysia, Bluebricks offers tailored financial solutions to help you manage or consolidate your debts effectively. This includes:
- Personal loan services
- SME loan services
- Mortgage loan services (to purchase a new home, refinancing and cashback purposes)
- Collateral loan services
We also offer personalised consultancy services based on your needs by considering factors including:
- The specific required loan amount.
- How urgent the loan amount is.
- Whether a property has been held by you or your parents for over ten years.
- Your income level.
- Your CTOS score (such as your credit score and credit history).
Why Bluebricks
1. One of the Top 10 Leading Loan Agencies in Malaysia
Our loan agents represent both individuals and businesses, offering technical and financial advice to help secure loan approvals. Even if banks have previously rejected you, we provide access to a broad spectrum of loan options. Our aim is to enhance the success rate of your loan applications and minimise rejections.
2. Over 10 Years of Experience
With over a decade of experience and current banking knowledge, we excel in securing personal, business, mortgage, and collateral loans, navigating challenges like CTOS/CCRIS, and guiding clients confidently towards successful loan approvals.
3. One-Stop Solution
We provide a one-stop loan service, compiling various options from banks and credit institutions for you. Simply submit your income statement, assets, liabilities, employment record, and credit history, and we’ll handle the collateral and documentation to streamline your loan approval process.
4. Full Financing with 100% Bank Loans
We ensure 100% bank loan availability to provide full financial support, making it easier to achieve your goals and build a positive credit history.
5. No Upfront Payment Required
Our no upfront payment policy is designed to ease your financial journey, allowing you to start your investment without initial costs, reducing immediate burden and demonstrating our commitment to your satisfaction and trust.
