Falling into debt can be overwhelming, especially when repayment becomes a struggle. This article explains what happens when you default on a loan, and what options are available to manage the situation.
1. What is an “Event of Default”?
An event of default occurs when a borrower fails to meet terms set in a loan agreement. This can include missing repayments, becoming insolvent, or breaching other obligations. When this happens, lenders may demand full repayment, raise interest rates, or charge penalties—even before the loan’s original due date.
2. Consequences of Defaulting
If you default:
- You may be charged higher interest and late fees.
- Your credit score could take a hit.
- Lenders can seize collateral (like a home or car) for secured loans.
- For unsecured loans, legal action may be taken against you.
3. Can You Fix a Default?
Yes—many agreements include a “cure period,” allowing you to make overdue payments or take corrective actions to avoid further penalties or repossession. Curing a default can help you reinstate the loan and keep your collateral.
4. What if You Still Can’t Pay?
If the debt remains unpaid:
- Secured loans may lead to asset repossession.
- Unsecured loans could result in lawsuits or bankruptcy proceedings.
- You might receive a Statutory Demand, giving you 21 days to pay before bankruptcy action begins.
5. Other Solutions
- Negotiate with lenders for revised payment plans.
- Debt consolidation merges multiple unsecured loans into one, simplifying repayments.
- Bankruptcy or the Debt Repayment Scheme (DRS) are last resorts for debts over S$15,000, offering structured repayment or debt discharge under court supervision.
6. Debt Collector Conduct in Singapore
Debt collectors must operate within legal boundaries. They cannot:
- Use violence or threats,
- Damage property, or
- Harass or stalk borrowers.
Licensed moneylenders are also restricted from abusive practices or requesting sensitive personal information like SingPass credentials.