In an earlier article, we look at all the fees that you incur if you pay for your bills late and if the debt goes to the debt collection and the accountant. In this blog post, we will instead give you two concrete examples of how big a debt can be if you do not pay for it so that you really see how expensive it can be.
How big your debts can be – two examples
One example illustrates how expensive a small loan can become if you do not pay it off within three years and the other how large the debt can be after five years if you have an unpaid private loan.
How expensive an unpaid sms loan can be
- You take a sms loan of USD 5000 with a maturity of 1 month which has a loan cost of USD 1000. Your original debt is thus USD 6000.
- You do not pay on time and may not extend the loan of the lender you have chosen and therefore receive a reminder where interest rates and a reminder fee have been added to the invoice. Many sms lenders have a delay fee of 30% (annually) and the reminder fee is USD 60.
- After a month, the case is forwarded to debt collection, but even before it is the debt is up to USD 6,685 and with collection another USD 180 is added to the debt. Your debt is now USD 6,865.
- For a year, debt collection will try to get you to pay off your debt, but you won’t. During this year, you will pay USD 1,800 in delay fees and maybe USD 720 in reminder fees. We write “maybe” because it differs slightly between the collection companies. Now your debt is USD 9,385.
- The debt goes to Goodbank. Now another 600 USD is put on your debt for the Goodbank’s foreclosure. If you have something to measure, they may force you to sell this and take 4% of the sale price, for example if they force you to sell your car, but we assume you have no foreclosed property.
- After one year, Goodbank makes another foreclosure and you have to pay USD 600 a second time, in addition, Goodbank takes the same interest rate as before. After two years, your debt has increased by USD 4,800 and is now at USD 14,185. That’s what you have to pay if you settle your debt after 3 years.
As you can see, in the end you get to pay USD 9000 for a sms loan of USD 5000 and it is hardly any higher, but it will actually get even worse if you do not pay for a large private loan.
How expensive an unpaid private loan can be
- You have taken out a loan from Nordea that applies an interest rate that is your individual interest plus one percentage point. You have borrowed USD 350,000 and received an individual interest rate of 7%. After a year, your debt is USD 300,000 plus interest, but now you become unemployed and cannot pay for the loan.
- It takes 1 year before the case ends up at Goodbank and before the debt has ended up with debt collection. This means that you have to pay USD 24,000 in interest on interest plus reminder fees and collection fees which can end up around USD 900 before the debt reaches the Goodbank.
- For four years the debt lies with Goodbank and it generates a total interest rate of USD 96,000 plus USD 600 a year in the basic fee (foreclosure fee), which becomes USD 98,400. Your debt has thus grown from USD 200,000 to USD 323,300!
So it is an extremely costly
Story if you do not pay for your loans at all for an extended period of time and that is why you should never borrow money if you are not entirely sure that you can repay. Okay, it may not be possible to know if you will be unemployed or long-term sick in the future, but that is why it is so important to protect your finances with income insurance and a buffer.