Economic gloom and doom hits home when you can’t make your loan payment.
Is it because of rising interest rates, job loss or layoff? Was it a life event like illness, accident, divorce, pregnancy, death or maybe some emergency that threw you off financially?
Debt is a complicated 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 of the things that happen when you start missing your loan payments.
What Will Happen If I Miss My Loan Payment?
It starts with communication. The lender sends a letter, makes a phone call, or sends an email reminder (that you can verify). It might be a notice on your loan dashboard or account statement.
However, there are more specific things you should look out for when you don’t pay your loan payment. We explain some of them below.
Late Fees
Most loans have fees that you must pay once you’ve missed the due date for making a payment. These fees will pile up quickly. Since you couldn’t afford to make the original payment, added late fees make your situation worse.
Delinquency
Delinquency is a failure to pay an outstanding debt.
Let’s say your loan requires you to make monthly payments but you completely skip one month. That means you will be an entire billing cycle past due. This forces your lender to report you to the credit bureaus. That can impact your credit report and your credit score.
What If you miss a consecutive billing cycle? Then you start receiving unpleasant phone calls from your lender and potentially even debt collectors.
Once you’ve missed three consecutive billing cycles your credit score can suffer. And don’t forget the interest charges that are added to your remaining payments. You owe the interest fees and your outstanding balance.
Any new potential lender can see your delinquency and that can make it harder for you to get another loan.
Charge-Off
Do not ignore your lender. You can solve a lot of problems with clear and direct communication.
However, if you miss enough payments and contact your lender, they can charge–off your debt. What does it mean? It means that they don’t believe that you will be able to pay off your loan. They write it off as a loss.
However, the charge-off will show up on your credit report. It signals to future lenders that you did not pay back your debts. It can make it hard for you to get a loan again if you need one.
The charge-off stays on your credit report for up to 7 years.
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 collections agency. The do this to try and get at least a percentage of their money back.
At this point there is a collections account on your credit report. This, along with the charge-off, can greatly affect your credit score. You’ll now have to deal calls from a debt collector. A debt collector’s only job is to get you to pay them and they will be extremely persistent.
Legal Action
If your lender doesn’t sell your debt to a collections agency then they might take legal actions in order to get the money you owe them. You could be sued for a larger amount than what you actually owe or you could be forced by the legal system to pay back the debt in full.
But no matter the outcome, any legal action will again show up on your credit report and add another black mark against you and making it just a little bit more difficult to get another loan in the future.
What Happens If I Miss A Car Loan Payment?
Since a vehicle is a physical object, the unfortunate consequence of you being unable to make your payments on time could be a repossession. This is obviously a worst-case scenario, but it is a possibility you need to be aware of.
Here’s the deal, if you miss one payment and it’s the first payment you’ve ever missed your lender will be more lenient with you and definitely won’t repossess your car. But they will 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 loan as delinquent to the credit bureaus (Equifax and TransUnion) and your credit score will be negatively affected. If you wait even longer you may default on your loan and your account may be sold to a debt collection agency.
What Happens If I Miss A Mortgage Payment?
Unfortunately, a house can also be repossessed, just like with a car loan this is the worst-case scenario but it’s something you should be aware of nonetheless.
You’ll need to discuss with your lender things like home equity and there 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.
This type of help will, of course, be determined on a case-by-case basis so you absolutely need to get in contact with your lender right away.
What Happens If I Miss A Personal Loan Payment?
Your lender will most likely be lenient towards you if you missed a payment on a personal loan. Nonetheless, if you continue to miss payments and make no effort to get in contact with them, your lender has the right to take legal action against you.
This will be registered with the credit bureaus and your credit score will be negatively impacted. Your ability to borrow money in the future may also be negatively affected.
If your personal loan is unsecured your lender may sell your account to a collections agency and you’ll have to deal with them instead of your original lender.
Steps To Help You Make Your Payments On Time
While there are unique steps you can take depending on what type of loan you’re currently having trouble making the payments on, 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; 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. The bottom line is, all lenders want to get paid and while they probably won’t be happy, they will work with you to create a more suitable repayment plan.
Step 2: Renegotiate Your Loan
The next step you should take is to discuss your options with your lender when you contact them about not being able to make a payment on time. You should discuss your options beyond the one payment you’re having trouble making. 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. We can’t guarantee that your lender will be able to change the terms of your loan but if never hurts to ask.
Step 3: Create A Budget And Make More Money
For anyone and everyone who is currently having difficulty making their loan payments, you need to create a budget, 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 will without a doubt 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 to handle. Times like those call for more drastic debt relief options.
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 as opposed to none at all.
Bankruptcy & Consumer Proposal
If debt settlement isn’t an option, you may have to consider a more serious debt relief solution like a bankruptcy or a consumer proposal. Bankruptcy can relieve you of most of your debt but you may lose some of your assets along the way.
Moreover, a bankruptcy leaves a mark on your credit score for up to seven years after being discharged. On the other hand, a consumer proposal involves paying a portion of your debt over a period of five years.
Once paid, your debts are absolved. However, your credit report remains affected for three years following the completion of your payments.
Speak To A Professional
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.
