When you struggle to pay a loan, the question you likely ask is, “What happens if you miss a loan payment?” Unfortunately, if you do not act fast enough, your debt can spiral out of control, and the lender will come after you.
When you miss a loan payment, the consequence of lateness or missing can include legal action, additional fees, repossession, and you have a limited option to resolve these.
It is a serious business to take out a loan. As the borrower, you must try to keep up with the monthly or weekly repayments. When you fail to keep up with the repayment, a lot happens, and this article covers all that can happen if you miss your loan payment. You will also learn about the best methods to resolve the problem of missing your loan payment.
What Happens if You Miss a Loan Payment?
The first thing that happens when you miss a loan payment is that your lender will send you a warning, which can be in the form of a letter, email, or both. The warning is a notification for you to make your repayment as you have missed it.
The notification also contains any charges that you could incur for missing payment. It can include additional late payment fees and interest charges. If you have no money to pay, these charges can force you into a severe financial problem.
Is Missing a Loan Payment Bad for Credit Score?
Missing a loan payment is bad for your credit score. If you miss your loan payment, it negatively affects your credit score even if you forget it. You do not want your credit score impacted negatively because it makes it difficult for lenders to approve your loan application in the future.
If you have a damaged credit score, your credit card applications application will be rejected, you cannot secure a mortgage for a new home, and more. The lender considers high risk and is not willing to approve your loan for fear of your inability to repay.
Read Also: Credit score hacks?
Can My Lender Repossess My Property?
If missing one loan repayment is bad, what happens if you miss several weekly or monthly repayments? Apart from receiving a default notice from your lender, they can threaten to repossess your home or car.
Typically, your lender will pass your debt onto a specialist debt collection agency. For example, if you financed a car and are unable to repay the debt, the lender can send you to the collections and gets paid while you now have to resolve your debt with that agency.
This means you no longer deal with your lender but with an agency that can be ruthless. The agency may even bring court action against.
What Will the Court Do if You Miss Your Loan?
If the court decides against you, you will repay even more than you missed. Other fees will be included, such as additional interest, and then you have court expenses to settle which cause a bigger financial problem. Note that these can impact your credit rating for many years.
What to Do if You Miss Your Loan Payment
You do not sit back after missing your payment. The faster you act the better. Do the following:
Find Available Options from the Lender
If you have a problem repaying your loan, contact your lender. Lenders typically have options that ease the burden of your loan, it can be allowing you to skip payments for some months or changing your due date. Some lenders allow you to negotiate a settlement.
Explain to your lender that you are unable to make payments and ask if they can accept less than you owe. Although this method will not work, you can try to convince your lender that you cannot make payment. This will affect your credit a bit but puts your payments behind.
If you fail to inform your lender about your inability to pay, they cannot help you in ways including freezing your interest and granting repayment extensions.
You can get a different loan to repay your loan, especially if you took out toxic loans like payday and credit card loans. You consolidate with a personal loan for lower interest costs and reduced weekly or monthly payments. A new loan also extends your repayment window.
For instance, you can take out a personal loan you can repay for over three years. However, a longer repayment might mean more in interest.
It is better to apply for a new loan when you foresee that you will miss your loan payment. Another lender would not want to approve your loan if you are behind.
You can apply for unsecured loans with credit unions or banks within your community, as well as online lenders. To reduce the damage to your credit, apply for these loans at the same time and select the best offer.
Request Payment Deferment
If you qualify for payment deferment, your lender lets you stop payments for some months. This period may be enough to gather money and resume your loan repayment.
Go for Income-Based Repayment
Income-based repayment makes your payments affordable. You can apply for it if you do not qualify for payment deferment. It helps when your income is low, so you will get to make low payments to meet up with your debt amount.
Make Late Payment
Instead of missing your loan payment for a long time, you can instead make it late. Nonetheless, it is not best to delay payments. Try to pay the loan within 30 days to the lateness date. Your late payment may not even be reported to credit bureaus, meaning it does not affect your credit. Meanwhile, you may be able to change your credit score legally.
You may be able to get assistance help in some areas. The federal government, local utilities, charities, and others can provide you relief to clear your debt.
These agencies or programs help you to be relieved so that you can complete your loan repayment with ease.
To pay your debt, you have to spend less and earn more or both. For quicker results to raise money, sell the items you no longer use and seek help. You can take extra work or a side hustle and cancel your subscriptions to various services and programs. For success in the long term, make sure to develop a good spending habit.