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Missed Loan Payment: What Happens Now?

Missing a loan payment isn’t something new to lenders and 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, and once paid will be a thing of the past. If you go past three or four months, you will be entering into default status, meaning 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 simply 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 your following statement shows the due balance is now for both months. If you make up this payment and continue moving forwards, 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 if You Miss a Payment or Default on a Loan?

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 attempted contact by the lender and soon-to-follow debt collectors.

The penalty of a missed payment is going to 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, non-payment will show up on your credit report, creating negative marks on your credit.

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

Non-payment on loans is one of the most significant factors that go into a credit score and 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, making 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 of its smaller payments for a more extended amount of time.

If you cannot pay off larger loans such as a mortgage or a vehicle, the banks can take back the property. 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 are unable to pay off your vehicle, the lender can have the car repossessed, and if you cannot come up with all of the back payments in a certain time-fame, 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 will stay on your credit report for six years.

Another possibility is being summonsed 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 you might end up not being able to afford your payment in advance, you should always contact the lender right away and see if there is something they can do to work with you.

Banks and other lenders don’t want you to fall behind, so, they are willing to offer up options to get you back on track as long as this is not a re-occurring issue.

What Lenders Can Do To Help

Here are a few different ways many lenders have been known to do in order to get clients back in good standings. 

  • 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 up from having to make a double payment to get caught up.
  • Lower your monthly payments- You might be able to work out a new and 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 it is rare, some creditors will work with you and will hold off on reporting your missed payment to the credit agencies. As long as you catch up, this won’t affect your credit history.

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 simply forgot or for some reason it didn’t go through, you should send the payment in immediately. If this doesn’t happen often, you might be able to request the lender refunds 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 there is nothing we can do to avoid it. However, it is your responsibility to 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 online to pay your bill; it will come out of your bank account automatically on the same day each month.

Keeping a Monthly Financial Planner

A lot of 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 make sure you will 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 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?

There are a lot of financial advisors and charities available to help you understand debt and help you become organized with your payments. You can find financial solution agents at many banking branches or credit unions as well as charitable organizations.

For help contact any of these non-profit organizations

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

Missing a loan payment is avoidable most of the time 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 to never go it alone. Contacting your lender can be one of the most stressful re-leaving calls you will ever make. 

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