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While banks and credit unions continue to provide loans of all types, online lenders are growing in popularity. But while online lending may offer plenty of conveniences, these lenders may not be as stable as a traditional financial institution. Simply put, online lenders could face closure due to bankruptcy or legal reasons far more easily than the big banks in Canada.
If you have a loan with one of these lenders and you suddenly find out that your lender has gone bankrupt, do you know what you should do?
Read on to find out what to expect when a lender goes under and what that holds for you.
If a loan provider files for bankruptcy, they will cease the funding of new loans.
When it comes to existing loans, either the lender will continue collecting payments on existing loans until they are all paid off, or another lender or liquidation firm will purchase and assume the lender’s loan portfolio.
If you still have a loan with the bankrupt lender, you’ll be notified of the new lending company that you’ll be making loan payments to. Generally speaking, the terms of your loan shouldn’t change.
Sometimes a lender can shut down because they failed to meet the lending laws and regulations. For example, if the lender was charging more than they were legally allowed to according to provincial regulations, your rate could decrease with the new lending company. In the case of predatory lending, you may be eligible for a refund of any interest rates or fees that were charged under illegal conditions.
Your lender’s bankruptcy does not mean you can stop making payments towards your loan. Regardless of your lender’s status, you’ll still be required to make payments according to your loan agreement. Your contract still remains in effect even if your lender goes bankrupt.
Other than receiving notification that your loan repayments are going to another lending firm, you may not notice much change in your loan at all. Things should progress as it normally would even if your lender shuts down. Your debt will simply be transferred to another company without any impact on your payments.
There may be one particular scenario in which you may be able to stop making payments; namely, if nobody notifies you of your debt being transferred to another agency.
If you don’t hear from anyone regarding the acquiring of your loan after your lender files for bankruptcy, consider writing a letter to your original lender. Inform them that you’d like to repay your loan, but would like some proof showing that the loan has been legally transferred to the appropriate entity.
If you receive no response from the lender or from a collection agency, you may want to postpone your payments. You want to be sure that your money’s going to the right company and doesn’t wind up in limbo or in the wrong hands.
At some point, the statute of limitations on your loan may pass, which refers to the time frame when a lender can take legal action against you for repayment. When this happens, debt collectors may no longer be in a legal position to sue and collect. However, before you stop making loan payments, be sure to seek advice on this from a lawyer licensed in your jurisdiction.
As mentioned, it wouldn’t be a good idea to stop making your loan payments if your lender shuts down due to bankruptcy. You’re still obligated to continue to adhere to your original loan contract. Only if you’re not notified on whom the new lender is, should you consider possibly pausing your loan payments. However, before you make any major decisions consider consulting with a lawyer first.
It should be noted that if you stop making loan payments, your credit score could be negatively impacted. If a new lender takes over your debt, they will start monitoring repayments. If they notice that your payments have stopped, the credit bureaus will be notified, which can negatively affect your payment history.
Once your payments are late by a month or two, your loan may be considered in default; which can also impact your credit rating. Even one loan default on your credit report could stay on your record for years, making it more difficult for you to get approved for loans and credit accounts in the future.
If your lender goes bankrupt, there are a few steps you should take:
The situation described above is generally what happens with unsecured loans, such as personal loans that have no asset of value backing the loan. The situation may differ with secured loans.
If you currently have a secured loan – such as a mortgage or auto loan – then your lender may have a lien on the asset. If you want to sell your home or car, or refinance the loan then you may have to clear the lien first.
It’s possible for there to be an issue if the lender who issued a secured loan, goes bankrupt. If the line must be cleared and the lender is gone, there could be a problem when it comes to determining who has the authority to take the funds or clear the lien. In this case, there could be a delay in selling the asset and out-of-pocket expenses to release the lien.
You might be concerned after learning that your lender has gone bankrupt. After all, they’re holding a lot of your money. Luckily, your lender’s bankruptcy shouldn’t impact you much.
Your payments will still need to be made as they always have without change to the terms, conditions, and rates. That said, you should still find out exactly what is happening behind the scenes. Including who your new lender is and whether or not there could be subtle changes to your loan.
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