While obtaining a loan in Singapore can be super-swift, we can’t say the same about paying it back. It’s common for borrowers to rack up piles of personal loans that they cannot set off. And the result? Defaulting. Technically, a loan default occurs in two ways. The first one is when a borrower knowingly fails to acknowledge a loan payment because their finances are too uptight or out of sheer arrogance. Secondly, loan defaulting can also result from forgetfulness. When you unknowingly miss a loan payment, and there’s no set grace period by the lender, you’ll be treated as a loan defaulter. This can happen either immediately or months after missing multiple payments.
What are the consequences of defaulting?
When either of these scenarios plays out, a lender forwards your details to third-party debt collectors who take the mantle to recover both the principal amount in question and the interest rates. To make it worse, defaulting only accelerates the loan interest rate in Singapore. It can also lead to legal action from lenders and repossessing of collateral in the case of an unsecured loan.
But, we don’t have to get there. Usually, a sixth sense can detect the probabilities of defaulting way before it happens. In this blog post, we look at five tell-tale signs of defaulting and how to act when you spot them!
- You’re currently facing dire financial constraints.
Are you jammed for cash? Just lost your job or had to pay for a hefty medical emergency? This might be the first indication that you’re susceptible to defaulting on your loan in Singapore. While brokenness may be a subtle source of embarrassment for some, it isn’t a rare occurrence. Especially not now when many Singaporeans are picking up the pieces after a raging pandemic.
- You fail to contact your lender.
If you sense that you won’t match your loan obligations, it’s only responsible to tip off your lender. Make an in-person visit to their office or dial up their phone number. Together with your loan servicer, you can chart a new, flexible repayment plan. You could even opt for a loan deferment whereby you fast-forward your payment by skipping some months without incurring penalty fees. Such options are super lucrative for any borrower with an unsecured loan in Singapore. Not only do you save money by avoiding late payment fees, but you save your credit reputation and collateral as well!
- You didn’t read your Loan Contract letter.
The urgency of obtaining a quick loan in Singapore can sometimes prompt aspiring lenders to fly over the contents of loan contracts. This leads to little to no understanding of the loan terms, triggering sheer disregard for timely payments. Since such lenders tend to be clueless about the consequences of missing payments, defaulting is somehow inevitable. But ignorance is no defense. If you didn’t initially go over your loan contract, do it now! Inside, you’ll find your rights and responsibilities as a borrower and different repayment alternatives to help you evade a default.
- You’re still Stuck on Manual Payment Systems.
When you depend on your overworked brain to remind you to transfer a certain amount from your checking account to your creditor’s account, we can’t guarantee that you’ll always get your timing right. In fact, this is an indication that you’re at risk of missing payments. To avoid being a victim, switch to an automated system that makes payments without needing your physical presence.
- Low Credit Score.
The thing is, your score determines your loan interest rate in Singapore. In turn, your loan interest rate determines the monthly payments you’ll need to make. When the interests are too high because of a sub-par score, the payments can get overwhelming very quickly, hence increasing the chances of defaulting. So whether you’re aiming for a secured or unsecured loan in Singapore, the first step you should take is to fine-tune your credit score to at least AA (2000 points) or BB. A high score will bag you better loan deals that you won’t have a problem paying off.
Loan defaulting can lead to unpleasant consequences like repossession of collateral, legal action from lenders, or embarrassing calls from debt collectors. If you spot any of the signs above, take precautions to avoid defaulting on your loan in Singapore.