What is the penalty of not repaying a loan?

Answer 1

It depends on the terms of your loan agreement, and the type of loan you're dealing with.

Generally, there aren't any criminal penalties - failure to pay a loan is a civil matter between you and the lender. That isn't to say, however, that the consequences can't be severe.

First, many loan agreements have "acceleration clauses" meaning that if you miss a specified number of payments, the entire balance becomes due and payable immediately. If you can't or won't pay the entire balance, your creditor can sue you for failure to pay.

The creditor will probably win, resulting in a judgment against you. This judgment could be enforced in a number of ways. The most common would be wage garnishment - basically, the creditor would be able to take a percentage of your wages until the entire debt is paid off.

If the debt is secured (a mortgage or car loan, for example), they can repossess the collateral (your house or car). If it's unsecured, they'll have to sue you and hope for the best.

Furthermore, failure to repay a loan can destroy your credit rating, making it difficult or impossible to get loans in the future.

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Answer 2

If you have any proof you loaned someone money, such as a contract, an I.O.U., an email discussing the loan, etc., and the loan is below a certain amount, you can take the person to small claims court to recover your money. Go to Google, key-in "small claims court" and the name of your city and state, and you should find out more info. I just went throught this procedure to recover money from a deadbeat "friend", and I believe my local small claims court set their limit to claims involving sums below $1500.00. The court used a contract process server to alert my "freind that she was being sued, and that's all it took for her to put a check in my mailbox the next day. It cost me about $25.00 to fill out the paperwork at the court, and I had to pay the process server another $50.00. but I got my $500.00 back! Good Luck!