What Happens if a Borrower Defaults? How to Protect Your Investment

Introduction

Loan defaults are a risk between family and friends, but proper planning can minimize potential losses. Here’s how to protect your relationship and your investment.

Step 1: Choose Relationships Wisely

The borrower should be someone you have known for a long time and have had the appropriate time to evaluate their trustworthiness. The better your relationship, the lower likelihood that the the loan will ever go into default.

Step 2: Keep Your Relationship

Remember that your relationship comes first. Money is second — that in mind, the best thing you can do as a lender is to not treat that person any less than they always have been to you.

Step 3: Use Platform Default Protections

Pari has a new feature coming soon — a risk profile evaluator that allows us to evaluate a borrower’s risk profile from their banking data. We can protect user’s privacy while providing lenders like you insight on the risk of the loan.

Step 4: Communicate with the Borrower

If a borrower misses a payment, attempt to resolve the issue through communication before escalating. On Pari, you can send bump reminders in addition to the automatic reminders.

Step 5: Legal Action and Recovery Options

Pari has new features coming soon — allowing lenders to sell their loans to collection agencies and report the default loan to credit agencies. Although we do not recommend legal action, because our mission is to preserve and improve relationships, you can use the digital receipt in your legal action.

Conclusion

By taking proactive measures, lenders can protect their relationships and investments, minimizing the financial risks associated with loan defaults.