Investment

What happens if I miss a personal loan repayment?

While this may not be perfect, there may come a time when you miss a payment for your personal loan despite your best intentions. But what does this mean for your financial health?

First, it is important to understand how credit providers and reporting bureaus differ between different types of missed payments. It largely depends on how long you have to pay after the due date.

Most credit providers tend to have a grace period of up to 14 days for customers to recover for their missed payment, which can then be recorded on their credit report.

According to credit reporting bureau Equifax, a repayment was made:

  • between 14 and 60 days after the due date is a late payment, at;
  • more than 60 days after the due date is considered a default.

Regardless of whether you missed your loan repayment because you couldn’t afford it, or you just forgot to transfer funds on time, there are likely to be some level of consequences you will face. Some of these may include the following:

You may pay a late fee

Most lenders usually have a missed payment penalty that will be charged to your account when you miss a payment on your loan. This fee is usually charged for all types of missed payments – even those that are corrected within a day or two.

While the amount you can be charged for losing a payment differs between lenders, the average late payment fee for personal loan and car loan products in the RateCity database is $ 22.14. For comparison, the average late payment fee for credit cards in the RateCity database is $ 20.58. Both averages exclude products with a $ 0 late payment fee. Consider checking directly with your personal lender for an accurate figure.

One thing to keep in mind is that a missed payment penalty is not always a one-off fee. If you fail to make a payment using a specified time frame, you may be hit with additional late fees until it remains unpaid.

You may be charged additional interest

If you miss a payment, your account balance won’t be reduced as scheduled, meaning you’ll be charged additional interest on the missed payment amount. This will increase the total interest to be paid on your loan.

Your credit score could hit

If you neglect to pay your missed payment for more than 14 days after the due date, you risk recording the negative event recorded on your credit file. A late payment – paid between 14 and 60 days after the due date – can be recorded on your credit file even if the loan amount is minor.

According to Equifax, “it is likely that a late payment followed by making your payment on time will significantly affect your credit score”. However, because it can still be recorded on your file, it can affect the outcome of an application for credit in the future. This is because your payment history plays a part in the decision -making processes of lenders.

Meanwhile, a missed payment that remains unpaid for more than 60 days after the due date is recorded on your credit file as a default and will almost certainly have a negative impact on your credit score. Other than a late payment, a default will only be recorded on your report if you miss a payment of more than $ 150, but can stay there for up to five years due to its serious nature.

What should I do if I know I will miss a payment?

If you are experiencing financial guilt and cannot afford to meet an upcoming personal debt repayment, consider contacting your credit provider as soon as possible. They can offer you help with financial hardship such as an extension or payment plan.

Contacting as early as you can and reaching an agreement with your lender can mean you avoid having a missed payment recorded on your credit file. Keep in mind that this may depend on the reason your payment is late, as most lenders have certain criteria for financial hardship.

You can also access free financial counseling through contacting National Debt Relief.

And if you’ve missed a payment in the past and it’s recorded on your credit file, consider visiting the RateCity credit score hub for ideas on how to get your credit back in shape.

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