What Happens When You Default on a Secured Loan?

A secured loan is a type of lending instrument in which a piece of property is used as collateral for the money that is lent. If you borrow money with this type of loan and do not make your payments back to the lender, the loan will go into default. At that point, the lender will exercise its right to take your property.

Missing Payments

If you have a secured loan with a lender, you will most likely have to make regular payments to the lender to retire the debt. Most loans are set up so that you make a monthly payment back to the lender. If you miss your monthly payment, the lender will contact you to let you know that you are late. The lender could potentially charge you a late fee or add the balance of your payment to your next monthly payment.


At a certain point, your loan will go into default. Some lenders will give you two months and others will give you as long as six months before it gets to this point. If your loan is a mortgage, the lender will file a Notice of Default with your local government and put the notice in the newspaper. If you have an auto loan or some other type of secured loan, the lender will notify you in writing.


If you have a piece of property such as a car or boat as the collateral for a loan, the lender will most likely repossess it at this point. The lender will hire a repossession expert to handle the job on its behalf. You will most likely not be present when your car or other property is taken. Repossession experts will research your actions to try to find the best time and place to take back your property without any issues.


If you have a secured loan on a piece of real estate, you will have to go through the foreclosure process. The lender will go to court to get an order to sell your property in states with judicial foreclosure. In some states that have a non-judicial foreclosure process, the lender can sell your house after giving you proper notice. The lender will sell your property to make up the money that it lost from the loan.

Credit Impact

When you default on a secured loan, it will also impact your credit. The lender will contact the major credit bureaus and notify them that you did not live up to your end of the agreement with the loan. Defaulting on a secured loan can have drastic effects on your credit score. This will make it difficult to borrow money again in the future. If you do qualify for another loan, you will most likely have to pay high interest.

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About the Author

Luke Arthur has been writing professionally since 2004 on a number of different subjects. In addition to writing informative articles, he published a book, "Modern Day Parables," in 2008. Arthur holds a Bachelor of Science in business from Missouri State University.

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