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Economic gloom and doom hit 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.

Key Takeaways

  • When you miss a loan payment, you’ll usually 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 a “charge off” or legal action. 
  • Speak to your lender or creditor before you miss 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.

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. Many lenders will charge up to $45 for late fees. Moreover, you may also get charged NSF fees from your bank if your lender tried to extract a payment but could not 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 result in additional interest charges. The main reason for this is that interest on many personal loans is calculated daily. 

Missing Loan Payments: 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.

The more loan payments you miss, the more it can negatively impact 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 a lot of problems with clear and direct communication.

However, if you miss enough payments, 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 and they write it off as a loss.

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 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.

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 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.

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 payment as late 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 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.

This type of help is determined on a case-by-case basis so you need to get in contact with your lender right away.

What Happens If I Miss A Personal Loan Payment?

Missing a personal loan payment will likely have two results. Your lender will charge you a late fee and/or you’ll incur additional interest charges. This is because many lenders calculate personal loan interest daily. Secondly, loan payments that are 30 days late, will be reported to the credit bureaus. This may have a negative impact on your credit. 

If you continue to miss payments and make no effort to get in contact with them, your lender has the right to send your account to collections. This could the the lender’s internal collections department or they could sell your account to a collections agency. You’ll have to deal with them instead of your original lender.

  • Less Than 30 Days Late – Generally, loan payments that are 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 –  Payments that are 30-60 days late will be reported to the credit bureaus. Your creditor may also reach out to you via, email, mail, or phone to notify you of the missing loan payments. 
  • 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 I Miss A Credit Card Payment?

When you miss a credit card payment, you’ll generally be slapped with two charges:

  • A late payment fee 
  • Interest charges on the balance 

Late payments will also be reported to the credit bureaus which may negatively impact your credit scores. If you’re missing multiple credit card payments, your creditor may cancel your card. However, you’ll still be responsible for paying the balance. 

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 it 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, 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 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.

Missed Loan Payments FAQs

How many loan payments can I miss?

You should plan to miss no payments. However, one missed payment likely won’t result in your account being sold to collections. You will be charged a late fee and the late payment will be reported to the credit bureaus. You should also contact your lender and discuss a plan to get back on track. 

Will missing a loan payment hurt my credit score?

A loan payment that is 30 days or more late will likely be reported to the credit bureaus. This can affect your credit. Keep in mind that all credit scores react directly. Your score will be affected differently than someone else’s who also missed a payment. 

How to tell if your loan has been sent to collections?

Contacting your original lender is the easiest way to figure out if your loan has been sent to collections. But you can also check your credit report.

Caitlin Wood, BA avatar on Loans Canada
Caitlin Wood, BA

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

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