The number of Americans falling behind on their credit repayments is rising. Many banks have reported that Americans are struggling to keep up with their payments compared to pre-pandemic levels.
Debt is stressful. But staying on top of your credit repayments is vital to achieving financial health and freedom. Missing a personal loan payment will affect your credit score. It will also leave you in serious financial trouble.
Here’s what you can expect if you miss a payment.
Late Payment Fees and Penalties
Lenders will typically impose a late payment fee. These charges can vary depending on the loan terms that you agreed to.
Late fees are usually calculated as a percentage of the missed payment. Other lenders prefer to charge a flat fee. Make sure that you’re aware of how the fee is calculated before you agree to the loan.
Review your loan terms thoroughly before you sign your agreement. Take a look at what the penalties are. Being aware of these charges can help you plan your finances accordingly.
Negative Impact on Credit Score
A missed loan payment is bad news for your credit score. Payment history is one of the main things that credit agencies look for when they’re calculating your credit score.
A missed payment can stay on your credit report for as many as six years. It will give your score a big knockdown when you initially miss the payment. The further away you get from the missed payment, the more your score will start to creep back up to where it was.
Many creditors can provide you with a grace period to get your finances in order and try and make the payment a little later than the due date. These grace periods prevent the payment from being reported as missed on your credit report.
Accrued Interest and Extended Loan Term
Missing a payment does not absolve you of your payment obligations. Instead, the unpaid amount continues to accrue interest, and the loan term may be extended. When you miss a payment, interest is typically charged on the outstanding balance.
As a result, you end up paying more in interest over the life of the loan, and it may take longer to fully repay the debt. It’s important to be aware of the long-term financial implications of missed payments and consider the increased cost of borrowing.
Collection Efforts and Debt Recovery
If you consistently miss loan payments, lenders may escalate collection efforts to recover the debt. Initially, lenders may send reminders via phone calls, emails, or letters to encourage payment. However, persistent delinquency may lead to more aggressive collection actions.
This can involve more frequent and intense communication from the lender or even engaging a collection agency. In some cases, the lender may initiate legal action, such as filing a lawsuit to obtain a judgment or pursuing wage garnishment.
The specific collection efforts and debt recovery actions can vary depending on the lender and applicable laws in your jurisdiction.
Damage to Your Financial Reputation
Missing loan payments can damage your financial reputation and credibility. Lenders may view you as a higher credit risk, making it difficult to obtain credit in the future.
The negative impact on your credit score can affect your ability to secure loans, credit cards, or favorable interest rates. Additionally, it may impact other aspects of your financial life, such as renting a home, getting insurance coverage, or even securing employment.
It’s crucial to maintain a positive payment history to build trust and credibility with lenders and financial institutions.
Seeking Assistance and Payment Arrangements
If you anticipate difficulty making a personal loan payment, it’s advisable to contact your lender proactively.
Many lenders are willing to work with borrowers to establish payment arrangements or modify the loan terms temporarily. Communicating your financial situation and exploring alternative options can help mitigate the negative consequences of missed payments. Some lenders may offer forbearance or deferral options, allowing you to temporarily pause or reduce your payments.
Others may be open to restructuring the loan or extending the repayment term to make the payments more manageable. It’s important to reach out to your lender as soon as possible to discuss your situation and find a solution that works for both parties.
Steps to Take After Missing a Personal Loan Payment
If you’ve missed a personal loan payment, it’s essential to take immediate action. Start by assessing your financial situation and understanding the reasons behind the missed payment. Create a budget to evaluate your income and expenses, and identify areas where you can make adjustments to free up funds for loan repayment.
Develop a plan to catch up on missed payments, considering the impact on your overall financial health. Contact your lender to discuss possible solutions or repayment options.
Prioritize making the missed payment as soon as possible to minimize further negative impacts. Consider seeking financial counseling or advice to regain control of your finances and prevent future missed payments.
Find a Loan Today
Missing a personal loan payment is something you should try to avoid at all costs. It will have a detrimental effect on your financial and mental health and can lead to worsening money problems.
If you need a loan, then consider Tekaloan. We offer a 5 day grace period for missed payments and like to help our customers with money troubles where we can.
Get in touch today to find out more about our loans.