What to Do if I Cannot Make a Loan Repayment in Time?

Quick online loans provide a fast and easy way to handle unexpected emergency costs, pay urgent bills, or support personal or business needs. However, taking an online loan requires being careful, because failing to repay this money can lead to problems.

Some might think that unpaid online loans will just “go away” after some time. But in reality, unpaid online loans don’t just disappear. Online lenders have rights to take legal actions against those who don’t repay back.

Online lenders can also report late or missed loan payments to credit bureaus, which can lower a borrower’s credit score, and therefore have a negative impact on their credit history. That’s why borrowers shouldn’t ignore or abandon their debt obligations.

Frequently Asked Questions
About Loan Repayment

1. Is there a Criminal Case for not paying Debt?
2. What Happens if You don’t Pay Back Online Loan on Time?
3. What to Do If You Cannot Repay Loan in Time?
4. What is loan default in the Philippines?
5. Responsible Borrowing is the Key

Is there a Criminal Case for not paying Debt?

Failing to repay online loans does not result in criminal cases, but rather civil cases. The legal framework in the Philippines protects individuals from being imprisoned solely on the basis of loan debt non-payment. This protection is rooted in Article III, Section 20 of the 1987 Philippine Constitution which states that “No person shall be imprisoned for debt”. The Revised Penal Code further supports this by categorizing the failure to repay a debt as a civil offense, not a criminal one​.

Online lenders in the Philippines do have the right to pursue legal action against borrowers who default on their loans. They can file a civil case to recover the money owed. In such cases, if the lender wins, the borrower may be required to pay not only the outstanding debt but also possibly other charges such as interest, moral damages, exemplary damages, and other legal damages that the court may award​.

There are specific rules and regulations governing the conduct of lenders and their collection agents when attempting to recover debts. Unfair collection practices are defined and regulated by different agencies depending on the type of lending institution. For banks, credit card companies, and their collection agencies, the Bangko Sentral ng Pilipinas (BSP) is the regulating body. While for financing or lending companies, it’s the Securities and Exchange Commission (SEC). 

The SEC, for instance, issued Memorandum Circular No. (MC) 18 which lists conducts considered as unfair collection practices like using or threatening violence, using threats to take any action that cannot legally be taken, using obscenities, insults, or profane language, among others. Violating these regulations can result in penalties for the lending companies or their collection agents, even if they’ve outsourced their collection activities​.

On other hand, failing to repay online loan money may lead to legal action. Such action is confined to the civil domain, with the aim of recovering the debt and not criminal prosecution. However, the process can lead to additional financial burdens and a negative impact on the borrower’s credit history, which can affect their ability to secure loans in the future.

What Happens if You don’t Pay Back Online Loan on Time?

Before applying for a loan, you should carefully read the agreement with the lender. Because by tapping “I agree”, you accept the terms and conditions laid out in the agreement and you become liable for adhering to them. Agreement with the lender should include information about consequences in case of late repayments, penalty fees, and other consequences. Failure to repay online loans on time can have a significant negative impact on a borrower’s credit history.

• Late fees. When a payment is missed or paid late, lenders typically charge late fees. These fees can add up over time, making it more difficult for the borrower to catch up on payments.
• Interest charges. Interest continues to accrue on unpaid balances, and the longer a debt goes unpaid, the more interest will accumulate. Moreover, some lenders may increase the interest rate if payments are missed.
• Lower credit score. Payment history is a major component of credit scores. Late payments or defaults on loans are reported to credit bureaus, which can significantly lower a borrower’s credit score. A lower credit score can affect the borrower’s ability to get a loan in the future for several years.
• Collection actions. If a loan remains unpaid for an extended period, the lender may send the account to a collections agency. Collection actions can include frequent contact from collections agents, and the collections account will be reported to credit bureaus, further damaging the borrower’s credit score.
• Legal actions. Lenders may take legal action to recover the debt. This can include filing a civil case against the borrower. Legal actions will be a matter of public record, and can also be reported to credit bureaus.

Always check the agreement with the lender and all available information on the website about late loan repayment. Information about late fees, additional interest charges should be in the agreement. 
Additionally, ensure that the lender abides by the provisions of the “Truth in Lending Act” by disclosing all finance charges and the true cost of borrowing in the loan contract. This will provide a clearer understanding of the terms and potential costs associated with late repayment or default. Any violation of this Act by the lender may provide the borrower with grounds to contest the loan.

What to Do If You Cannot Repay Loan in Time?

• Extend Loan Repayment. Contact your lender as soon as you realize you may have trouble making a repayment. Many online lenders have provisions for extending the repayment period. This will give you more time to repay back the loan, although it may also result in additional interest charges and higher total costs.
• Agree on monthly repayments. If you find yourself unable to pay back the quick online loan in full amount in one payment, discuss with your lender the possibility of setting up a monthly repayment plan. This way, you can spread the repayment over a longer period that’s more manageable for you.
• Debt Consolidation. This is a viable option especially if you have multiple debts. By consolidating your debts, you can manage them more easily under one monthly repayment with a potentially lower interest rate and longer repayment period. However, be aware that while it can lower your monthly payments, you may end up paying more in interest over the life of the loan due to a longer repayment term.

What is loan default in the Philippines?

The terms loan delinquency and loan default are often used interchangeably in the context of the Philippines​.

Default on a loan is defined as the non-payment or payment of an amount less than the amount required for at least three billing cycles. Loan delinquency and loan default are often used interchangeably in the context of the Philippines​.

Borrowers typically have a grace period of 90 days or three months to settle their outstanding balance before their loans are considered in default. However, the exact time before a loan goes into default may vary from one lender to another, and some banks may have shorter grace periods​.

The specific period after which a loan is considered in default is usually outlined in the loan’s terms and conditions. It’s crucial for borrowers to be aware of these terms to avoid defaulting​.

Loan default can have severe consequences on a borrower’s credit score and financial stability. Therefore understanding the definition and implications of loan default is vital for maintaining good financial health.

Responsible Borrowing is the Key

Handling money matters, especially when it comes to taking on debt, calls for responsible borrowing. It’s all about knowing what your loan terms are, making sure you can manage the loan repayments, and staying on top of your debt. By looking at your income and other money obligations, you can figure out a realistic amount to borrow, ensuring that loan repayments won’t stretch your budget too thin. Paying on time not only avoids extra interest and fees but also helps keep your credit score in good shape.

If unexpected money problems come up, talking with your lender can help find a way forward, perhaps through changed loan repayment terms. Also, being aware of lending laws like the “Truth in Lending Act” in the Philippines can help you make smart borrowing decisions.

Responsible borrowing is not just a smart money move, but a way to secure your financial future, making sure the borrowed money serves its purpose without causing stress. Through responsible borrowing, you can take advantage of financial opportunities while keeping money risks low.