What Happens If You Miss a Payment on Your Loan?

Missing a loan payment isn’t something new to lenders, and it isn’t the end of the world if it ends up happening to you. However, if it happens frequently or you choose not to take care of your debt, you will find yourself in some trouble.

Most of the time, one missed payment will accrue late fees, which, once paid, will be a thing of the past. If you go past three or four months, you will enter default status, which means tons of fees, negative marks on your credit report, and debt collectors. 

Never ignore a missed payment, whether it was by mistake or because you don’t have the funds. Missing loan payments can become a huge financial burden, but there are ways to rectify the situation with little to no harm done.

What Happens If You Miss a Payment on a Loan?

Many people struggle financially every single day and often have a hard time paying their monthly bills, including loan repayments. However, not having the funds to cover one payment isn’t as detrimental to your financial well-being as one might think. 

If you miss one payment, you will notice on your following statement that the due balance is now for both months. If you make this payment and continue moving forward, you won’t have any issues in the future.

However, if you miss a third payment or more, the risk and penalties start to get worse and can get you into severe financial trouble and even legal trouble at some point.

What Types of Penalties Occur?

As mentioned, one payment isn’t going to result in severe problems if taken care of quickly. However, once you have hit the three-month mark without payment, you are going to notice a lot of contact attempts by the lender and soon-to-follow debt collectors.

The penalty for a missed payment will vary depending on the loan and its amount. You will start to receive phone calls requesting payment and letters in the mail. After a while, nonpayment will appear on your credit report, creating negative marks.

Even after payment is made, the issue doesn’t clear right up. You will be required to pay a fee for every month's late payment. These fees can be extremely expensive and will put you further behind financially than when you missed the initial payment. 

Nonpayment on loans is one of the most significant factors in a credit score. Defaulting on a loan can put you at risk of not being able to get approved for another one or a credit card in the future. 

What Happens If You Can’t Pay Back Your Loan?

There are a lot of situations that can arise that make you unable to pay your loans at all. If this happens, you will likely be required to set up a contract with your lender to pay your loan's smaller payments over a longer period of time.

The banks can take back the property if you cannot repay larger loans, such as a mortgage or a vehicle. On a mortgage, your house can be foreclosed on, and you will have to move out, and the bank can resell it to get their money back.

If you cannot pay off your vehicle, the lender can have the car repossessed. Furthermore, if you cannot come up with all of the back payments in a certain time, the car will be sold, and you cannot have it returned.

In some situations, such as small credit card debt, not paying the balance will put your card into default, and the card will be deactivated. This will impact your credit score negatively and stay on your credit report for six years.

Another possibility is being summoned to court. Some lenders will take a loss with small debts, but large unpaid loans won’t go away with a simple negative strike on your credit score. 

You never want to go to court with big lending companies, and they have lawyers and the money to fight, and some of your wagers and tax returns can be taken as a repayment option.

What Should You Do If You Miss a Loan Payment?

If you have any suspicion that you might be unable to afford your payment in advance, you should always contact the lender immediately and see if they can do something to work with you.

Banks and other lenders don’t want you to fall behind, so they offer options to get you back on track as long as this is not recurring.

What Lenders Can Do To Help

Here are a few different things many lenders have been known to do to get clients back in good standing. 

• Extend your payments or move your payments- Many lenders offer to push the missed monthly payment to the back of your loan, adding one more month before the loan is paid off. This frees you from having to double-pay to get caught up.
• Lower your monthly payments- You might be able to work out a new, lower monthly payment plan with the lender or refinance your loan for a lower interest rate, therefore lowering your payments.
• Delay reporting to credit agencies- Although rare, some creditors will work with you and hold off on reporting your missed payment to the credit agencies. This won’t affect your credit history as long as you catch up.

Many people will take on a second (temporary) job to catch up on back payments or have also asked family and friends for help. 

If you missed a payment because you forgot or, for some reason, it didn’t go through, you should send it in immediately. If this doesn’t happen often, you might be able to request the lender refund the late fee. 

Takeaway: Communication with the lender is key in every situation.

Ways To Avoid This Happening Again in the Future

Life happens, and sometimes we can do nothing to avoid it. However, you must realize where you are going wrong and correct the issue. 

Here are some ways you can avoid missing a payment in the future.

Set Up Re-Occurring Payments

Life is busy, and many of us struggle with staying organized and on top of everything. Try signing up for reoccurring payments through your lender to make your loan payments one less thing to remember.

With re-occurring payments, you never have to remember to call, mail a check, or log on online to pay your bill. It will automatically come from your bank account on the same day each month.

Keeping a Monthly Financial Planner

Many people find that keeping a financial planner or “payment command center” is an easy way to keep track of their finances. By doing this, they frequently look at what bills are due and when making it easy to remember and stay on top of things.

Pre-Plan

If you make a large, unplanned purchase that might put you behind, keep an eye on your account a little bit better to ensure you have the funds to cover your payment.

If you notice there won’t be enough in the bank, it is time to grab some extra hours or ask if you can borrow some money from friends or family. If you can catch it in time and plan ahead, you will not risk the headache of the payments snowballing out of control.

Change Your Loan Due Date

If you find that you are struggling almost every month around the time of your loan payment, but have extra funds for the rest of the month, request a due date change. Not all lenders have this option, but many do, and it can make a huge difference. 

Where Can You Go for Help?

Many financial advisors and charities are available to help you understand debt and help you become organized with your payments. You can find financial solution agents at many banking branches, credit unions, and charitable organizations.

For help, contact any of these non-profit organizations

• NFCC(The National Foundation for Credit Counseling)
• Consumercredit.com
• Green Path

You should never have to pay for financial help. Check with your local bank branches or your lenders to see if they offer credit counseling and financial advice.

Conclusion

Most of the time, missing a loan payment is avoidable if you can keep yourself organized and on a good financial track. However, there are times when life happens, and your loan payment is last on your list of important bills to pay. 

The best way to go about handling these situations is never to go it alone. Contacting your lender can be one of the best calls you will ever make. 

Simple Fast Loans always recommends contacting your lender directly. When it comes to online loans, a missed payment can be avoided with autopsy and manual reminders, but, if you do fail to make a payment, make sure to contact your lender directly to go over all your options.