What is a major consequence of defaulting on a debt?

Defaulting on a debt can have serious long-term repercussions, with one of the most significant being the inability to secure future loans. When an individual or business defaults on a loan, it indicates that they failed to meet the repayment terms, leading to negative marks on their credit report. These negative marks result in a lower credit score, which reflects the person's creditworthiness to lenders.

Lenders use credit scores as a key factor in determining the likelihood that a borrower will repay future loans. A history of defaults signals to potential lenders that the borrower may be a higher risk, often leading to denials of credit applications or the offering of loans at higher interest rates or with less favorable terms. As a result, defaulting can severely limit access to credit, making it difficult for individuals or businesses to secure financing in the future, whether for personal expenses, significant purchases, or expanding operations.