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As helpful and convenient as some credit products are, they can make it easy to rack up debt. This is particularly problematic with high-interest credit products, like credit cards, personal loans, and even car loans. Unfortunately, when coupled with your other daily and unexpected expenses, those kinds of debts can be difficult to pay down, at least in full amounts.
When that happens, it can be tempting to make partial payments just to avoid penalties. Then again, there are other consequences that may occur if you don’t pay your bills in full. Keep reading to find what happens if you make partial payments.
Check out how to avoid high-interest loans.
In Canada, it can be tough to find a credit product that doesn’t result in some kind of penalty when you don’t pay your debts in full and on time. That said, there are a couple of key differences between making partial payments and late payments:
Learn more about what happens when you miss your loan payments.
Debt doesn’t just apply to credit products. Plenty of financial products and services can involve payments. For example, utility providers set their own penalties for customers that don’t pay as agreed, just like a bank, credit card company or an alternative lender.
Here are some other common products that could have various consequences when you make partial payments:
Your mortgage is one scenario where it’s a really bad idea to stray from your agreement. Although some lenders will tolerate it under exceptional circumstances (like COVID-19), most will apply a hefty penalty to your final loan balance. Generally, the amount you have to pay is based on how many days late or how short the payment is.
Additionally, this could happen if you cannot make a full mortgage payment:
Check out how additional mortgage payments can lead to a prepayment penalty.
Credit cards are one of the few products that allow partial payments without penalty, provided you pay at least the minimum amount on your monthly balance statements. However, there are consequences for paying under the minimum or making too many partial payments, such as:
Struggling to pay off your maxed out credit cards?
No matter the size of your personal loan, your lender can still subject you to some severe penalties when you don’t make full payments, like:
Any type of vehicle loan can also involve a lot of risk for the lender and some major consequences can apply when you try to make a partial payment, like:
Unlike the everyday credit product, your income tax debts are handled by the Canada Revenue Agency. As such, more serious legal and financial consequences can apply if you don’t make full, timely payments, including but not restricted to:
Thankfully, if you provide a viable explanation for why you can’t report your taxes on time and arrange to pay the rest of your debt off in installments, the CRA may allow you to make a partial payment. For this to work, you’ll have to prove that you already tried to cover your debt by borrowing money or decreasing your expenses.
There are several credit products that you can qualify for as a student, such as a guaranteed loan from the federal or provincial/territorial government. Sadly, if you don’t pay as agreed, this kind of loan can also lead to severe drawbacks, such as:
Although these consequences are serious, the government might be understanding if you have a valid reason for making a partial payment. You may be able to negotiate for a more affordable repayment plan or qualify for the government’s Repayment Assistance Plan (RAP). If necessary, you can also speak to a Licensed Insolvency Trustee about debt forgiveness programs, like a consumer proposal or bankruptcy.
If you’re only able to make a partial payment this month, there are a few different options that can help you out of a jam, including but not limited to:
Before you do, make sure to find out about the potential consequences, since they can do significant harm to your credit and finances when you’re not careful. After all, while a full payment might not seem affordable at first, the penalties and interest that gets added to your unpaid debt may not be worth the trouble.
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