Do you ever wonder what happens when you default on your loans? Don’t be alarmed if you hear from a company that you have not worked with in the past. When you previous loan falls into a default status, your lender most likely reached out to a debt collection agency or debt buyer. These two kinds of companies approach your debt in very different ways. Learning more will help you prepare for every possibility.

Debt Collection Agencies

Large companies may have first-party collection agents within their own firms that reach out directly to early in the default process. If first-party collectors are not able to secure the money owed or the company does not have internal collection agents, they will reach out to debt collection agencies to work on their behalf. Unlike debt buyers, agents do not buy the debt, but provide a service to your lender. Collection agencies and their employees will not make money unless they can deliver your payment to their client. As a third-party contractor, they will be tenacious about collecting on your loans over the phone, through mailings and emails.

Debt Buyers

Debt buyers are financial institutions that buy your loan for pennies-on-the-dollar. In contrast to debt collection agencies, they own your debt. A lot of debt buyers purchase bundles of debt without the accompanying documentation. They often have incorrect or missing information about your loans on file. If a debt purchaser reach out to you, make sure to check your records about the amount owed, rather than trust their numbers. Also be aware that debt buyers, like other financial institutions, will sometimes work through debt collection agents or law firms to collect debt. They also may sell your debt to another buyer.

What Do You Need to Know

Doctor’s offices, hospitals, auto lenders, governments, banks and utilities companies all use debt collection agents and buyers. If you default on your loan, expect to hear from debt purchasers or collection agencies 3 to 6 months after you defaulted. Both types of companies can use aggressive tactics to try to get you to pay down your loans.

If a collector reaches out to you, stay calm and ask to see all of the documentation regarding your defaulted loans. You need to be fully informed about any evidence backing their claims. You are not alone as you advocate for your consumer rights. If you would like to speak to someone who can help you navigate this situation, feel free to reach out to a financial counselor for expert advice.

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