You probably already know that, if you have asked for a loan, it is important to pay for it on time. However, many times in life, unexpected things happen and can alter your plans. That being said, many reasons can make you unable to pay for your debts, such as being unemployed. So, if you are wondering what can happen if you miss a loan payment, we can help you understand this situation better.
First of all, it is important to know that missing a payment tends to affect your financial health in general. Because of that, if you find yourself in this situation, you should try and recover quickly to avoid paying more late fees and penalties and remaining in debt. Anyways, CredHelper can teach how to deal with this as efficiently as possible and mitigate the negative effects on your credit. Check below.
What you need to know about missing a loan payment
As you have realized so far, to miss a loan payment impacts your financial health, and the amount of impact depends on how long you haven’t paid your bills for, as well as the type of loan you owe.
Credit scores exist to indicate how reliable someone is with credit, and this is why it affects the ability to borrow money. Companies use different ways to calculate your score and decide if you meet their criteria.
The most common is that they use your credit history, details on your application form, and any other information available. So late payments could affect your score, suggesting you are not able to manage your finances.
How late payments affect your credit
Whether a late payment will or will not be a deal-breaker depends on how much it weighs on your report, as it contains other information. But it mainly depends on the credit you want.
Late payments are more likely to impact heavily your credit score if they lead to a default or judgment. Also, they usually stay on your report for six years, with their impact reducing as the record ages.
Step-by-step: what to do after missing a due date
Now that you understand the seriousness of a missed due date, you have to act quickly. In order to help you do that, we will teach you what to do if you miss a loan payment.
Step 1: pay as soon as possible
If you are still in the grace period, pay your debt as soon as possible to avoid fees and credit score damage. But even if the grace period has passed, paying quickly will still be beneficial for your financial health.
Step 2: talk to your lender
Stay in touch with the one who lended you money and make them aware of your situation. Then you may be able to make a temporary payment agreement with you without many fees.
Step 3: cut back on expenses
Understand how you can cut back on your expenses to save more money and prioritize essential bills and secured loans in order to avoid repossession or foreclosure.
Step 4: use monitoring tools
Use free tools online to monitor your credit, like your own banking app, and track your credit score to see how it changes with time. You can also dispute inaccurate negative information related to your missed payment.
Fees and penalties you may face
Up to 10 or 15 days, you usually have a grace period, which means you can still pay for your debt without penalty. However, after this time passes, there will probably be a late fee added to your balance.
After one whole month of not paying your loan, it can be reported to credit bureaus, and your credit score could drop up to 50, 100 points, or more, depending on your credit history, besides the late fees.
If you go up to 2 or 3 months, there can be an escalation, and your account may be turned over to collections. The lender may also take legal action, risking repossession or foreclosure proceedings.
How to avoid missing future payments
If you want to avoid missing a future payment, there are savings habits that can help you from falling behind. This way, you don’t have to miss a loan payment again.
- Create a separate savings account specifically for loan payments and try keeping 1 or 2 months’ worth of payments in it;
- Set up automatic weekly or biweekly transfers into this fund to grow the account over time.
- Align your loan payments with your payday. If necessary, request a due date change to sync your cash flow with your obligations;
- Round up your savings when you can, so each month you can add up more money and cover a future tight spot easily;
- Use work bonuses and tax refunds towards your loan account as much as you can to reduce interest over time.
Stop missing your payments!
If you don’t want to miss a loan payment ever again, you can also set up auto-pay or reminders, reducing the risk of forgetting. If automation isn’t possible, choose using calendar alerts or banking reminders.
