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What happens when somebody couldn't pay off personal loan

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The Unsettling Consequences of Defaulting on a Personal Loan


In today’s fast-paced world, personal loans have become an integral part of financial planning for many individuals. Whether it’s for unexpected medical expenses, home renovations, or debt consolidation, personal loans offer a convenient way to access funds quickly. However, what happens when someone finds themselves unable to meet the financial obligations tied to a personal loan? Defaulting on a personal loan can have far-reaching consequences, affecting both the borrower and their financial well-being.

  1. Impact on Credit Score:

One of the immediate consequences of defaulting on a personal loan is a significant hit to the borrower’s credit score. Credit scores play a crucial role in determining an individual’s creditworthiness, affecting their ability to secure future loans or credit cards. A lower credit score may result in higher interest rates and less favorable terms for any future borrowing.

  1. Accumulation of Late Fees and Penalties:

Defaulting on a personal loan often triggers a cascade of late fees and penalties. Lenders typically impose additional charges for missed payments, and these can quickly add up, exacerbating the financial strain on the borrower. The longer the default persists, the more challenging it becomes for the individual to catch up on payments.

  1. Legal Actions and Collection Agencies:

When a borrower defaults on a personal loan, the lender may choose to take legal action to recover the outstanding amount. This can involve filing a lawsuit, obtaining a court judgment, and even pursuing wage garnishment. In some cases, the lender may assign the debt to a collection agency, leading to relentless calls and correspondence that can be emotionally distressing for the borrower.

  1. Asset Seizure:

In certain situations, particularly when the personal loan is secured by collateral, the lender may have the right to seize the borrower’s assets. This could include homes, vehicles, or other valuable possessions that were used as security for the loan. Asset seizure adds a layer of complexity and stress to the borrower’s financial woes.

  1. Strained Relationships:

Financial strain resulting from defaulting on a personal loan can strain relationships with family and friends. Borrowers who turn to loved ones for financial assistance may find themselves facing strained interpersonal dynamics, potentially damaging these relationships.

  1. Long-Term Financial Consequences:

The impact of defaulting on a personal loan is not limited to the short term. The negative consequences can have a lasting effect on the borrower’s financial health. A damaged credit history may affect the ability to secure housing, employment, or favorable insurance rates.


Defaulting on a personal loan is a serious matter with significant consequences that extend beyond mere financial implications. It’s crucial for individuals to prioritize responsible borrowing and to communicate openly with lenders if they anticipate difficulties in meeting their repayment obligations. Seeking financial advice or exploring alternative solutions, such as debt consolidation or restructuring, can help mitigate the adverse effects of defaulting on a personal loan and pave the way for a more stable financial future.

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