The main reason people obtain unsecured loans is to avoid putting up collateral. Collateral are assets that will be taken by the lender in the event the individual defaults on the loan.

However, when you default on an unsecured loan the lender just doesn’t count their losses and go away. Of course not! This is the main misconception most people have about unsecured loans.

They think that because they haven’t signed off on any assets valuables can’t be seized. That is false. In fact, in most cases the effects of defaulting on an unsecured loan are worse than in the secured loan scenario.

What can the lender do?

So what can the lender do if the individual defaults on an unsecured loan?They can (and most likely will) take legal action against you. More specifically, they will sue in order to gain compensation for their lost investment. This can trigger a long chain of legal complications.

When it comes to unsecured business loans bad credit owners usually direct their attention towards the secured alternative simply because they can’t afford an unsecured one.

Personal legal action

In most business loan situations the lender has the owner underwrite the loan with their business. This means the lender can go after business and personal belongings. They can put a lien on accounts, real estate, cars and pretty much anything else of value you have.

If the lender isn’t paid per your loan agreement, repercussions will occur regardless of whether or not the loan was secured. It’s just a matter of how exactly those repercussions will play out. It is for this reason that many knowledgeable financial types think that secured loans are actually safer, because they know exactly what is at risk in the event of a default.

If your credit history, financial needs or overall financial situation is so bad  you’re likely to default on any loan you take out you should probably not take out a loan at all. After all, the point of getting a loan is to better your financials while defaulting simply gets you into deeper financial trouble.

Shift Frequency © 2017 – What Happens When You
Default On An Unsecured Loan