What happens if you take out a loan and don’t use it?

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Suppose, in this case, the lender charges an early repayment penalty of 1.5% of the loan balance. This will add an additional $ 750 to your total ($ 50,000 x 1.5% = $ 750). The full refund to the lender will now cost $ 50,750, which is $ 3,250 more than the lender originally deposited into your account.

Spend money?

The fact that an unused loan will cost you over $ 3,000 may be enough to tempt you to spend money or take it with you when you move. And that’s okay – as long as you make the agreed monthly payments.

If this unsecured personal loan (which means no collateral), most lenders don’t care what you do with the funds. but debt consolidation loan is an exception because it was provided for a specific purpose. If the lender has never asked about your purpose for borrowing money, you can use it as you see fit.

But again, this is only if you make every monthly payment as agreed. Failure to pay will have a number of consequences depending on the details of your loan. For example:

If you took an unsecured loan

The most common type of personal loan is unsecured. This means that the lender only allowed you to borrow money with your signature as a guarantee that the loan will be repaid. If you don’t live to see the end of the agreement, the credit bureau will be notified and your credit rating is likely to plummet. The problem with damaging your credit score is that restore your credit history… Meanwhile, bad credit means you pay more for any other loans you might apply for. Poor credit history can also make it difficult to rent a home. safe auto insuranceor even get the job you want.

If you took out a secured loan

A secured loan requires you to invest something of value such as pledge to protect the lender if you stop making payments. What is he doing secured personal loan the attractive thing is that it usually has a lower interest rate than an unsecured loan. This is because if you stop making your monthly loan payment, the lender can return the collateral, sell it, and recover your losses.

For example, if you took out a $ 50,000 loan using a rare classic car as collateral, the lender is entitled to that car if you miss payments. Wherever you move, you must comply with the terms of the loan agreement, otherwise you risk losing collateral. And you can be sure that wherever you move, the lender will find you (and their collateral).

If you had a lender

If for any reason you need a co-director to get a loan, he will be on the hook if you stop paying. Not only will your credit score drop, your partner will be legally responsible for accepting the debt. If they do not repay the loan, their credit rating will also drop, making it difficult to obtain future loans.

Two legal options

If, after receiving the funds, you decide that you do not want or do not need a loan, you have two options:

  1. Take the financial blow and pay off the loan along with loan disbursement fees and prepayment penalty.
  2. Use the money for other purposes, but make every monthly payment in good faith until the loan is paid in full.

Good news

The higher your credit rating, the more opportunities you have for all types of loans. In fact, if you have an excellent credit rating, you can probably get a personal loan without any loan origination fees or prepayment penalty. This is because you are the borrower that the lender would like to see signed up for another loan.

If your credit rating is not quite where it should be, take steps to raise it to a level that makes you an extremely attractive borrower. It may take some time and effort, but the results are worth it.

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