Economic gloom and doom can hit home when you can’t make your loan payments. This could be due to any number of issues, such as rising interest rates, job loss, illness, divorce, or some unexpected financial emergency.
Debt is a complex issue, and there is never one cut-and-dry answer for how to deal with it. Every situation is unique. However, there are steps you can take to reduce your financial problems, continue to pay down your debts and get your financial life back on track.
Here are some things that happen when you miss your loan payments.
Key Points
- When you miss a loan payment, you may incur late fees and interest charges.
- Missed payments are generally reported to the credit bureaus when they are late by 30 days or more.
- Missing multiple loan payments may result in harsher penalties, such as interest rate increases, a “charge off” or legal action.
- Speak with your lender or creditor before missing a payment. They are often willing to negotiate a payment plan that’ll work for you.
Missing Loan Payments: Consequences
It starts with communication. When you miss one loan payment, the lender may send a letter, email or make a phone call, to remind you of the payment due. They may even send a notice on your loan dashboard or account statement. That said, not every lender issues a notice after a single missed payment, so you need to stay on top of things.
| Number of Days Late | Consequence |
| Less Than 30 Days Late | Generally, loan payments that are late less than 30 days are not reported to the credit bureaus. However, you may be charged a late fee and incur interest charges. |
| 30 – 60 Days Late | Generally speaking, at least two missed payments in a row or within a 12-month period are reported to the credit bureaus. |
| 60 – 90 Days Late | The lender will continue to mark your payments as late and may make more aggressive demands for payment. |
| 90+ Days Late | If you continue to miss your loan payments, your lender may stop reporting it as delinquent and instead mark it as a “charge off”. In many cases, they may sell your debt to a collection agency at this point. |
What Happens If You Make A Partial Payment?
That depends on the type of credit product.
Credit Cards/Credit Lines: Making a partial payment on a credit card or line of credit may be enough to satisfy the creditor’s payment due date, as long as the amount you pay meets the minimum payment amount.
Installment Loans: Partial payments on installment loans — like mortgages, car loans, and personal loans — don’t work. Payments must be made in full and on time. Otherwise, the payment will be considered late or missed.
More On Missed Loan Payment Consequences
In addition to the late payment notices, you may also encounter the following when you miss your loan payments:
Missing Loan Payments: Late Fees
One of the first consequences of missing your loan payments is late fees. Not only do lenders charge for late fees, but your financial institution may also charge NSF fees if an attempt from your lender to withdraw payment was unsuccessful due to insufficient funds.
These fees can pile up quickly and make your situation worse.
Missing Loan Payments: Interest Charges
A missed loan payment may cause additional interest charges. The main reason is that interest on many personal loans is calculated daily. That means interest charges would apply immediately from the time of purchase.
Missing Loan Payments: Delinquency
Delinquency is the failure to pay outstanding debt. This forces your lender to report you to the credit bureaus, which can impact your credit report and your credit score.
If you miss a consecutive billing cycle, then you may start receiving unpleasant phone calls from your lender and potentially even debt collectors.
The more loan payments you miss, the more it can negatively affect your credit scores. Any new potential lender can see your delinquency, and that can make it harder for you to get another loan.
Missing Loan Payments: Charge Off
Do not ignore your lender. You can solve many problems with clear and direct communication.
However, if you miss enough payments, they can charge off your debt. This means that the lender doesn’t believe that you will be able to pay off your loan, and they write it off as a loss as a result.
The charge off will show up on your credit report, which signals to future lenders that you did not pay back your debts. This can make it difficult for you to get a loan again if you need one. Charge offs can stay on your credit report for up to 7 years.
Missing Loan Payments: Collections
Your lender doesn’t stop with a charge off. They can write off your loan as a loss and sell it to a debt collection agency. They do this to try and get at least a percentage of their money back.
Unfortunately, when your debt is sold to a collection agency, it’ll be noted in your credit report. This, along with the charge off, can greatly affect your credit score.
You’ll also have to deal with calls from the debt collector, whose only job is to get you to pay them.
Missing Loan Payments: Legal Action
Both your lender and debt collector can also choose to take legal action to get you to pay them back. This can lead to a garnishment of your wages.
But no matter the outcome, any legal action will again show up on your credit report and add another black mark against you, making it more difficult to get another loan in the future.
What Happens If I Miss A Personal Loan Payment?
Like other loan types, missing a personal loan payment will likely result in a late fee or additional interest charges. This is because many lenders calculate personal loan interest on a daily basis.
However, loan payments that are over 30 days late may be reported to the credit bureaus. If you continue to miss payments and make no effort to get in contact with the lender, they have the right to send your account to a collection agency, which will try to collect your overdue payments. If this happens, your credit score will be negatively affected.
What Happens If I Miss A Credit Card Payment?
When you miss a credit card payment, you’ll be charged interest on the balance. Further, at least two missed payments in a row or within a 12-month period will be reported to the credit bureaus, which may negatively impact your credit score.
What Happens If I Miss A Car Loan Payment?
Since a vehicle is a physical object, the unfortunate consequence of being unable to make your payments on time could be repossession. This is a worst-case scenario, but it is a possibility you need to be aware of.
If you miss one payment and it’s the first payment you’ve ever missed, your lender may be more lenient with you and won’t repossess your car. But they may want to know why you didn’t pay and if you think you’ll be able to pay soon.
The longer you wait to make your payment, the worse the consequences. Your lender may report your payment as late to the credit bureaus and your credit score will be negatively affected. Missing multiple payments may result in you missing multiple payments may result in you defaulting on your loan and your account may be sold to a debt collection agency.
Learn more: What Happens If You Can’t Make Your Car Payment?
| Voluntary Repossession: You have the option to willingly give up your car, known as “voluntary repossession“, if you’re at risk of defaulting on your auto loan. This can help you avoid the costs of having your vehicle repossessed, and minimize the negative impact on your reputation with the lender. However, your credit score will still be affected. |
What Happens If I Miss A Mortgage Payment?
Unfortunately, a house can also be repossessed. But just like with a car loan, this is the worst-case scenario and would only occur after you’ve missed at least 3 months of mortgage payments. Even then, lenders will try to work with you to figure out a repayment plan, as repossessing your home is a huge headache for them.
You’ll need to discuss things like home equity with your lender and whether or not you want to sell your house. Depending on your lender, they may have provisions to allow you to skip a payment or take a short break from having to make payments. They may even suggest refinancing your loan so your monthly payments are lower. However, taking this route would result in higher interest charges in the long run.
This type of help is determined on a case-by-case basis, so you need to get in contact with your lender right away.
Learn more: How Many Missed Mortgage Payments Before Foreclosure In Canada?
Steps To Help You Make Your Payments On Time
There are unique steps you can take depending on what type of loan you’re currently having trouble making payments on. That said, there are a few things that anyone who can’t afford to make their loan payments on time should do.
Step 1: Get In Contact With Your Lender
As soon as you realize you’re going to have trouble making your loan payment on time, you need to contact your lender. Most people’s first reaction would be to ignore or avoid their lender, but this will only make your situation worse.
It’s in your best interest to explain what’s going on to your lender. This way, your lender can offer help or an alternative solution, like a payment deferral. All lenders want to get paid and may be willing to work with you to create a more suitable repayment plan.
Step 2: Renegotiate Your Loan
If your financial issues extend beyond just missing a single payment, consider renegotiating your loan terms with your lender to come up with something more affordable. If you had trouble once, it’s likely that you’ll have more trouble in the future.
Ask about lower interest rates, smaller monthly payments, or a longer term. There’s no guarantee that your lender will be able to change the terms of your loan, but it never hurts to ask.
Step 3: Create A Budget And Boost Your Income
Everyone should have a budget in place, which can help you see how much money you’re bringing in relative to how much you’re spending each month. Budgeting may sound tedious, but with numerous easy-to-use budgeting apps available, you can simplify this important task.
You should also see where you can cut back on spending, and even consider increasing your income. This is the most common debt advice because it works. It’s easier said than done, but if your loan payments are creating a lot of stress in your life, making these changes can help you get back on track.
Alternatives To Help You Manage Your Debt And Make Your Payments
There are times in life when debt can become too much for you. Times like those call for more drastic debt relief options, which may include the following.
Debt Consolidation
Debt consolidation involves taking on a new low-interest loan to pay off all your high-interest debt. In many situations, consolidating all your high-interest debt into one loan (with low interest) can help solve your debt woes by making the debt more manageable and saving on interest.
Debt Settlement
A debt settlement involves hiring a debt settlement firm that will negotiate with your creditors to reduce your debt to a more reasonable level. Lenders are often willing to accept debt settlement as a repayment option because they prefer to recoup some of the money, rather than none at all.
Consumer Proposal
If debt settlement isn’t an option, you may have to consider a more serious debt relief solution, like a consumer proposal. A consumer proposal involves paying a portion of your debt over five years.
Once paid, your debts are absolved. However, your credit report remains affected for three years after your payments are completed.
Bankruptcy
As a last resort to your debt woes, you may consider bankruptcy. This option can reduce most of your debt, but you may lose some of your assets in the process.
Moreover, bankruptcy remains on your credit score for up to seven years after being discharged.
Final Thoughts
Sometimes, debt repayment can be overwhelming. If you find yourself in this situation, consider speaking with a professional credit counsellor. A professional can help you determine which steps you should take to get your financial life back in order and help you start making regular and on-time payments again. It might involve consolidating all your debts into one manageable payment. You have options.
