What Happens When You Default On A Secured Loan & Unsecured Loan in Malaysia

Key Takeaways:

• Ever wondered what happens when you default on a secured loan and unsecured loan?

• Late payments might incur minor penalties, whereas defaults are more severe and can lead to bankruptcy.

• Defaulting on secured loans like home and car loans can lead to foreclosure or repossession, respectively.

• Defaulting on unsecured loans may result in higher interest rates, credit score damage, and potential legal actions or bankruptcy.

• Prevent defaults by seeking financial advice, communicating with banks for possible repayment plans and understanding the severe long-term impacts of defaults. 

Understanding what happens when you default on a secured loan is crucial for managed financial commitments responsibly.

In Malaysia, defaulting on loans, whether secured or unsecured, carries serious financial repercussions. In this article, we'll explore what happens when you default on different types of loans and how to address these challenges.

Understanding Defaults on Secured Loans

Secured loans, like car loans and home mortgages, require you to pledge an asset (like your car or house) as collateral. This means if you default on the loan (typically by missing payments for 90 days or more), the lender has the right to take possession of the collateral to recoup their losses.

Car Loans: In a car loan default, the bank can repossess your car and sell it at auction to recover the outstanding amount.

Home Loans: A default on a home loan can trigger foreclosure proceedings. This is a legal process where the bank takes ownership of your house and sells it to pay off the debt. If the sale doesn't cover the entire loan amount, you may still be liable for the remaining balance.

Unsecured Loan Defaults and Repercussions

Unsecured loans, such as personal loans and credit card debt, don't involve collateral. However, defaulting on these loans still carries significant consequences:

Credit Score Damage: Late and missed payments are reported to credit bureaus in Malaysia, severely damaging your credit score. This can make it difficult and expensive to borrow money in the future.

Debt Collection: The lender may resort to debt collection agencies to recover the owed amount. These agencies can add additional fees and make the situation stressful.

Legal Action: In extreme cases, the lender may take legal action against you to recover the debt. This could involve a court judgment and wage garnishment.

Bankruptcy: If the outstanding debt becomes unmanageable, you might be forced to declare bankruptcy. This is a complex legal process that can have long-term financial implications.

Preventing Defaults: Communication and Planning are Key

There are steps you can take to avoid loan defaults:

Seek Financial Advice: If you're struggling to make loan payments, consider seeking professional financial advice. A financial advisor can help you create a budget and explore debt consolidation options.

Communicate with Your Bank: Don't wait until you miss payments. If you anticipate financial difficulties, reach out to your bank and discuss possible repayment plans or loan modifications.

Understand the Consequences: Before taking out any loan, be fully aware of the repayment terms and the serious consequences of defaulting.

By understanding the repercussions of defaults on secured and unsecured loans in Malaysia, you can make informed financial decisions and avoid a situation that can have a long-lasting negative impact on your financial well-being.

How Citywide Advisory can help you

To conclude, defaulting on any loan in Malaysia can lead to severe financial consequences. Understanding these risks and proactively managing your loans with the help of services like those offered by Citywide Advisory can safeguard your financial stability. 

We offer comprehensive range of loan services that cater to different needs, including:

• Personal loan services

• SME loan services

• Mortgage loan services (for buying a new home, refinancing and cashback purposes)

• Collateral loan services

Personalised Loan Consultancy Services in Malaysia

Citywide Advisory is the BEST loan advisory service in Malaysia.

Citywide Advisory also offers personalized loan consultancy services, helping clients understand and improve their rejected loan applications for refinancing housing loans and more.

We customise our loan recommendations based on an individual’s needs, considering factors like:

• The specific loan amount you require.

• The urgency with which the loan amount is needed.

• Whether you or your parents own a property that has been held for over ten years.

• Your income level.

• Your CTOS score (such as your credit score and credit history).

Our goal is simple: to help you find the right loan solution, paving the way to financial stability and debt freedom.

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