There are many different types of loans you can apply for: personal loans, car loans, mortgages, home equity loans, debt consolidation loans and so on. When you borrow money, you are signing a binding contract between yourself and your lender, where you agree to pay down your loan at a specific frequency with specific amounts. You are a signing a legal contract, and not following it can result with serious consequences.
One of the consequences that comes with missing your debt payments includes a mark on your credit file. To illustrate, if you miss a payment then this will be noted in your credit file, hurting your credit score and diminishing your ability to borrow money in the future. Why is this important? Well, if right now you are missing payments on, say, a car loan, and in the future you’d like to make a larger purchase (such as pay for a house or condo to increase your wealth) you will struggle to find financing for your loan. For larger purchases lenders will look at your past credit history as well as your current credit rating, and if either is dissatisfactory then lenders will either reject your application or finance you at an expensive rate.
When it comes to credit cards, missing payments goes beyond just hurting your credit score. You will be hit with interest rate fees that range from 20-30%, increasing your total debt burden.
In the case of payday loans, missing payments has similar consequences. However payday loan companies charge a lot of processing and administrative fees so the penalties for missing payday loan payments are direr for payday loans than they are for other types loans.
One of the biggest issues with missing payments is that eventually your debt may be sold to an abusive collections agency which is likely to harass you for the money that you owe. Once you enter this stage, your credit score will be damaged and the problem made more severe.
What happens if you cannot make your payments at all?
If you are unable to pay off your debts, you have a few options available to you.
In many situations debt woes can be solved by consolidating high interest debt into one, lower interest and manageable loan.
You can enter debt settlement programs to settle your debt. What happens in this situation is that the debt settlement firm that you hire will negotiate your debt down to a more reasonable level. Lenders are willing to accept debt settlement as a repayment option despite the fact that they would not get back all of the money they lent. This is because they are still better off getting some money back than getting none at all.
Bankruptcy & Consumer Proposal
If debt settlement isn’t an option, you may have to consider bankruptcy. Bankruptcy relieves you of all of your debt but leaves a mark on your credit score for years. This is always considered an option of last resort.