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03
Aug
Dealing with Delinquent Business Loans: Protecting Your Finances and Credit
Closing on a business loan often brings a sense of relief and excitement as you secure the funds to grow your business. However, it’s not uncommon to find yourself overwhelmed after a few months or years, realizing that you’ve taken on more than you can handle. With over one-third of Americans struggling with delinquent debt and the risk of loan defaults, taking immediate action is crucial when you fall behind on loan payments. This article provides essential information on delinquent loans, defaults, and practical strategies to protect yourself and minimize the associated damage.Understanding Delinquent LoansA loan becomes delinquent when you miss a payment, even in just one day. If you miss payments or cannot make them for an extended period (typically 90 to 120 days), the lender may classify the loan as default and initiate collection procedures. Both delinquent loans and defaults have negative implications for your credit. It’s important to note that the timing of your delinquency rarely matters. For example, if your payment is due on February 1 and the lender doesn’t receive it that day, the loan becomes delinquent on February 2.Consequences of Delinquent LoansThe consequences of a delinquent loan depend on your lender’s policies and the terms outlined in the loan agreement. However, there are three typical outcomes:Penalty Rates & Late Fees: Loan agreements often permit lenders to charge late fees after a few days grace period. Some agreements also permit the lender to increase the interest rate on overdue amounts, known as a “penalty rate” or “default rate.” Late fee structures vary among lenders, so it’s essential to understand their specific policies to avoid surprises.Negative Impact on Credit Score: Once you are 30 days late on payments, lenders can report the late payment to credit bureaus. Beyond this period, a late payment can decrease your credit score by nearly 100 points. In addition, poor credit score makes qualifying for future business loans more challenging. Late payments can remain on your credit report for up to seven years, even if you pay the lender after the item is reported.It’s worth noting that this 30-day rule does not apply to business credit reports, as lenders can report late payments to commercial credit bureaus even if you are just one day late.Increased Contact from LendersWhen you have a delinquent loan, expect frequent calls and emails from your lender urging you to make payments. Lenders prioritize collection efforts while the deadline is fresh in your mind. As delinquency continues, it becomes more challenging for lenders to collect the debt.Delinquent Loans vs. Defaulted LoansA loan transitions from delinquency to default when you have an outstanding balance for an extended period specified in the loan agreement. Typically, lenders wait 90 to 120 days before considering a loan as default.How to Identify Defaulted LoansWhen a loan goes into default, the lender will send you a written notice stating that you have breached the loan agreement and must immediately repay the entire loan balance. The lender might also sell or transfer the debt to a collection agency, escalating collection efforts to recover the outstanding balance. If the lender believes they won’t recover the money, they can charge off the loan, removing it from their books. However, you remain responsible for paying the debt.Actions After DefaultThe lender’s subsequent actions depend on whether the loan is secured or unsecured. Secured loans have collateral or personal guarantees backing them, while unsecured loans do not.
27
Oct
USA mortgages: ‘How did a $42,500 loan turn into a $477,000 debt?’
Cooper’s parents died in 2021, and their house was last year valued at $750,000, so – as things stand – he and his sister will have to hand over most of that to the bank. He says he feels certain his late parents did not realise that that $42,500 loan could spiral to close to $500,000 and “cost their kids their inheritance”.However, the bank says it recommended at the time that customers took independent financial advice to ensure they understood the product and that it was right for them, and adds that in this case, solicitors were instructed by the borrowers.The Coopers are among hundreds – probably thousands – of families whose lives have been blighted by shared appreciation mortgages (Sams). This was a type of home loan that was only on sale for a brief period, between 1996 and 1998, and only available from two banks, Bank of Scotland and Barclays.These loans were ostensibly aimed at helping “asset-rich, cash-poor” older people release some of the value locked up in their homes. They typically allowed people to borrow up to 25% of the property’s value, and usually there were no repayments to make during the lifetime of the loan.In return, people were required to pay back the original amount when the mortgage was repaid, or when they died and the house was sold, plus a share of any increase in the value of their home.This share was usually worked out on a three-to-one basis – so if you borrowed 25% of the value, you would be in line to hand over 75% of the future growth in value.Of course, in the years since those mortgages were sold, house prices have rocketed, leaving people facing massive repayments if they want to move – or, as in the case of Cooper, leaving the offspring of those who signed up with a huge and costly headache.
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