What Happens If You Default on a Personal Loan?

Defaulting on a personal loan typically means you've missed payments for 30 to 90 days or more, depending on your lender's terms. At that point, your account is usually reported to the credit bureaus, sent to a collection agency, and potentially referred for a lawsuit if the balance goes unpaid. If your loan is secured, meaning it's backed by an asset like a car or savings account, the lender may also be able to seize that asset. The exact timeline and consequences depend on your lender and whether the loan is secured or unsecured.

Already behind on payments and not sure what happens next? Speak with a debt specialist right now for a FREE consultation.



Disclaimer: We are not attorneys, accountants, or qualified bankruptcy professionals. This article is educational and should not be considered legal, tax, or financial advice. Always consult with a qualified professional before making decisions about a loan in default.

What Counts as Defaulting on a Personal Loan?

There's a difference between being late and being in default. Being "delinquent" just means a payment is past due; it's the early warning stage. According to Bankrate, a loan is usually considered in default once a payment is 30 to 90 days late, though the exact number depends on your loan agreement and lender.

Delinquency is often still recoverable; a lender may waive a late fee or work with you on a payment. Default is more serious. Most lenders treat it as the point where they shift from "collect this late payment" to "recover this debt by whatever means available."

Our Client Success team hears from people at every stage of this process, and one of the most common regrets we hear is waiting too long to reach out after falling behind, rather than too early.

How Does Default Affect Your Credit Score?

A default is one of the more damaging things that can happen to your credit. Missed payments are reported to the credit bureaus, and the resulting drop tends to be larger than a single late payment, since it reflects an extended pattern of nonpayment. This mark can remain on your credit report for up to 7 years, even after the debt is paid or settled, which can make it harder to qualify for new credit, rent an apartment, or get favorable interest rates during that time.

What Happens After Your Loan Goes to Collections?

Once a lender decides you're not going to catch up, they usually do one of two things: try to collect the debt themselves, or sell the debt to a separate collection agency, called "assigning" the account. Either way, you're protected by the Fair Debt Collection Practices Act. This is a federal law that limits how and when collectors can contact you. According to the Consumer Financial Protection Bureau, you have the right to request written validation of the debt. This confirms the amount owed and who currently holds it before you pay anything.

Ignoring calls or letters from a collector doesn't make the debt disappear. It typically just moves the account further along toward a potential lawsuit.

Can a Lender Sue You Over a Defaulted Personal Loan?

Yes. If your personal loan is unsecured, meaning there's no asset tied to it as collateral, a lawsuit is generally the main tool a lender or collector has to recover the balance. If they win, the court issues a judgment, an official ruling that you owe the money. That judgment can then lead to wage garnishment (part of your paycheck withheld and sent to the creditor), a bank account levy (funds frozen and taken directly from your account), or a legal claim placed on something you own, like your home.

If you're already facing this stage, what happens if you ignore a debt collection lawsuit covers what to expect if a case moves forward. Our Educational Resources Center also has more guidance on how to respond if you've already been served.

If you're worried a defaulted loan could lead to a lawsuit, it helps to talk through your options before it gets that far. Get a free consultation to see what's realistic for your situation.

What's Different About Secured vs. Unsecured Personal Loans in Default?

Most personal loans are unsecured, meaning they're backed only by your promise to repay, not by any specific asset. Some are secured, often by a vehicle or savings account pledged as collateral. What happens after default is meaningfully different for each: