Skip to main content

Consumer Protection Law

Search for an Attorney  

Personal Loans

When you're facing a large or unexpected expense and you don't have the savings to cover it, a personal loan could help you. Personal loans can be comparatively easy to get and with the right repayment plan they can give you more time to address your financial needs in a safe and manageable way.

But personal loans, like any monetary dealings, can have their own issues and complications. Knowing what some of the biggest pitfalls are for personal loans can help you stay protected and keep your financial health on track.

What is a Personal Loan?

A personal loan is a fairly versatile way to borrow money. Unlike other loans used for a narrow purpose, such as student loans or home loans, personal loans give you more freedom to use the money as you'd like. They can be a great way to help you cover sudden emergency expenses, like renovations for a flooded basement, or to fund major life events like weddings or child adoptions.

How much money you can get and the terms of your loan are subject to several factors, like which bank you use and your credit score. There may be minimum or maximum amounts you can borrow, and you'll have interest rates and monthly payments that apply to your account. Some personal loans are secured, meaning you provide collateral like property you own, or unsecured, meaning you don't have to put up any collateral or liens (though you may face stricter loan terms as a result).

What are the Legal Risks with a Personal Loan?

Though personal loans can have many benefits, they're not risk-free. Depending on your lender, there can be stiff penalties for any mistakes you make with your loan.


A personal loan includes a legal contract stating when, how, and the amount you'll pay towards the cost of the loan each month. If you fail to follow the agreement in your loan contract and begin to miss consecutive payments, you'll likely become delinquent. A delinquency may be added to your credit report, lowering your score and affecting your ability to secure loans or loans with good interest rates in the future.


If you've been in delinquency for too long without making efforts to pay off your debt, you may end up defaulting on your loan. This would mean that your lender believes you will never pay off your loan, so they will likely close your account and "sell" your debt to a collection agency. That agency will then begin trying to collect from you.

A default is a serious mark on your credit score that could affect your ability to borrow again for years to come, impacting everything from credit cards to mortgages.


If you default on a secured loan, your creditor can repossess the collateral you put up. So if you used your car as collateral on a personal loan, but you default, your creditor can repossess your vehicle and sell it to try and make up for the money you owe.


Once you're dealing with a debt collector, you open yourself up to additional legal complications over your loan. You could end up sued in a civil court for the amount you owe. If you lose, the court will compel you to pay the loan back, possibly even garnishing your wages to do so.

How to Protect Yourself

The best way to protect yourself from the negative effects of a personal loan is to understand the terms of your loan. You'll need to know how much you need to pay back and when, as well as understand the consequences for missed payments.

If something does start to go wrong and you're struggling to keep up with the payments, working with a consumer protection attorney can help you make plans to prevent you from defaulting on your loan. A skilled lawyer could help you negotiate down your payments or help you defer the payments for a time. If you've already defaulted, working with an experienced legal professional can help you build your case and fight in court against a lawsuit.

One of the most important things when dealing with loans is mindfulness about the amount, avoiding taking out more money than you can reasonably pay back, or with monthly payments too high for you to make on time each month.