What Happens When I Can’t Make My Loan Payments?
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In an unpredictable economy where many people’s jobs aren’t as secure as they’d like them to be, it’s inevitable that loan payments are going to be missed. When homes are depreciating in value, salaries are being cut, jobs are being lost, and unemployment is a real concern, many people need to ask the question, what happens if I can’t make my loan payments on time or at all?
Debt is a complicated issue and there is never one cut and dry answer for how to deal with it, every situation is unique. There are of course steps that you can take to reduce your financial problems, continue to pay down your debts and get your financial life back on track.
What Will Happen If I Miss My Loan Payment?
Depending on what type of loan you have, there may be some more specific things you should look out for if you’re unable to make your payments on time. However, in general, you should be aware of the following:
Most loans have fees that you must pay once you’ve missed the due date for making a payment. These fees can and will start to pile up quickly and since you couldn’t afford to make the original payment, increasing them with late fees will only make your situation worse.
If your loan requires you to make a payment each month and you completely skip one month then you will be an entire billing cycle past due, this will force your lender to report you to the credit bureaus. By the time you’ve missed another billing cycle, you’ll be receiving unpleasant phone calls from your lender and potentially even debt collectors. Once you’ve missed three consecutive billing cycles you’ll have difficulty applying for a new loan and your credit score will have taken a pretty serious hit. And don’t forget the interest that all these late payments will incur, will soon be more than your original payment amount.
If you miss enough payments and don’t do anything to get in contact with your lender then they will potentially charge-off your debt, this means that they don’t believe that you will be able to pay off your loan and have decided to write it off as a loss. The charge-off will show up on your credit report and will signal to future lenders that you were unable to pay back your debts, therefore, making it hard for you to get a loan if you ever need one.
Once your lender has decided to write off your loan as a loss they will probably sell it to a debt collections agency to try and get at least a percentage of their money back. You will now have a collections account on your credit report which along with the charge-off will greatly affect your credit score. Not only will you have collections account on your credit report but you’ll now have to deal with the stress of receiving calls from a debt collector. A debt collector’s only job is to get you to pay them and they will be extremely persistent.
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 thus adding 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 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 to 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 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.
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 will leave 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 will be considered absolved, but your credit report will be negatively affected by it for three years following the completion of your payments.
Speak to a Professional
Sometimes debt repayment can be overwhelming and in the event that you find yourself in this situation, you should 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. If you’re interested in the debt relief options available to you, Loans Canada can help.
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