I understand that the IRS makes sure you play taxes, but what about loans? Like can’t I just get a movie from a redbox and never return it since i’d only have to pay when I returned it?
In: Economics
when you took out that loan you opted into a contract with the bank that issued it under the promise that you will eventually pay under the terms set .
if you decide to not pay you breached this contract and they are in their right to execute the measures that contract enables: often this is taking the collateral that was agreed(an asset or set of assets you placed as the guarantee that you’ll pay) and if that is not possible they have a case to take you into court to seize whatever other assets are allowed in order to settle the debt in full. if for w/e reason that is not possible(ie: nothnig to seize) the entity will have ot report the loss to a credit bureau and this will impact your record/credit Score whichwill inhibit your ability to get further Loans/credit.
on smaller scale stuff like rentals the item itself is the collateral that if failed on the loaner can charge you to replace it and failing that they can refuse service.
Do you want to do business with people or businesses that don’t uphold their end of the agreement? You buy a car, but it self-destructs an hour after you drive it off the lot? You buy groceries, but you get home and the steak is rotten and the milk is curdled? You buy tickets to go to the movies, and they direct you into an empty room where nothing happens and eventually you just leave? You rent an apartment, but when you get there someone is already living there? You accept a job offer and move across the country, but whoops, they gave the job to someone else instead?
Yeah, you don’t want to do business with people like that. And if *you’re* like that, no one will want to do business with you, either. Between terrible credit scores, lawsuits, repossessions, foreclosures, and a generally all-around terrible reputation for being dishonest and not paying, you’d find it increasingly difficult to exist in society.
Businesses use a lot of different strategies to deal with problem borrowers:
– Deposit. You have to put down money, you only get it back if you return it.
– Credit card on file. The company takes your credit card info and charges you for the costs of your shenanigans, plus a fee.
– Internal reputation / blacklist. The company keeps records of all its loans, if they recognize you trying to borrow again, they’ll refuse to let you.
– Industry-wide reputation / blacklist. Multiple companies or entire industries all talk to each other about bad borrowers. This is basically what a credit rating is — if you screw one company by not repaying a loan, getting additional loans later gets much harder, with higher rates and worse terms.
– Collateral. The company sets up the loan so that they can seize and sell your house, car, or other property (e.g. stocks).
– Lawsuits. The company can sue you. If you don’t show up to court, or lose the case, the company can ask the judge to order your employer to send part of your pay directly to pay off your debt, and/or order the sheriff (police) to physically take away your property to be sold to pay your debts.
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