You’ve had a busy week. Perhaps your salary was late hitting your account. Whatever the reason, you’ve missed a loan payment. If you’re wondering ‘what happens if I miss a loan payment?’ well the truth is, that depends. It could be as simple as a late fee, but if it’s a repeat occurrence, the consequences can be worse.
But before you panic, read up on ‘what happens if I miss a loan payment?’ Learn what you can do to repair the mistake and avoid missing them in future.
Understanding Your Loan Terms
When you first begin the process of taking on a loan, you will have been provided with a significant amount of paperwork. This paperwork will relate in detail the terms of your loan. There is likely to be a lengthy section devoted to ‘what happens if I miss a loan payment’.
Before you sign on the dotted line, it is important you are across these terms and conditions. If you do not understand or require clarification of the terms, always speak with the lender before taking on the loan.
Once you have signed, you are indicating that you agree with everything outlined and the document is legally binding. Your lender takes this to mean that you know exactly ‘what happens if I miss a loan payment’.
What Happens If I Miss A Loan Payment?
The consequences of missing a loan payment will depend on your lender and the type of loan you have. It will also depend on whether this is a one-off or repeat occurrence. Penalties involved can include:
- Late fees: this can be a flat rate or a percentage of the outstanding balance.
- Sale or seizure: of the collateral or security used to obtain the loan.
- Loan extension: the lender can add the missed payments to the loan and extend its duration, making money on the interest paid on the remaining balance.
- Referral of the debt: to a collection agency.
- Lowered credit score: potentially a default on your credit history.
- Difficulty: gaining approval for loans in future.
- Legal action: for repeated missed payments, including court judgments.
What Does It Mean If I Get A Default?
If a string of late payments has led to you having a default on your credit score, it’s something you will need to address. A default is recorded on your credit history for a period of up to five years. Even if the debt is cleared, this black mark remains. Impacting your ability to take our future loans, get a credit card and even something as simple as a phone plan.
A single missed payment won’t lead to a default, but it should be treated as if it would. Most lenders will understand that mistakes can happen and circumstances can change. However if you do not demonstrate responsibility as a borrower, things can quickly escalate.
What If I Know I Can’t Make The Next Payment?
Be proactive. If you know you cannot make the payment in advance, contact your lender and discuss it with them. They may be able to negotiate a solution with you such as:
- Suspension of the next payment.
- Negotiate a new timeframe within which to make the payment.
- Adjusting your loan term to create lower monthly repayments.
- Referral to the financial hardship team if you anticipate ongoing issues.
Waiting till after you’ve received a default notice is to be avoided at all costs. Once this occurs it can be much harder to negotiate your loan. Meaning finding a way forward and avoiding future missed payments will be more difficult.
How To Avoid Missed Payments
The best solution to ever being in the situation of wondering ‘what happens if I miss a loan payment?’ is to never be in it. There are some easy steps you can take to avoid missing loan payments:
- Set reminders in your calendar.
- Set up a direct debit ensuring funds are deducted automatically from your account.
- Have a budget that factors in the repayment and stick to it so you’re never short on funds to pay it.
- Pay more than the usual amount so if you ever miss a repayment in error, you’re already ahead. Meaning it’s not noted as a missed payment.
If you’re struggling to repay your loan, prioritise speaking with your lender.
Has Your Credit Score Been Damaged By Missed Loan Repayments?
Transparency with your lender can go a long way towards helping you manage the situation. It can also help you avoid significant damage to your credit score – something that can haunt you for years to come.
If your credit score has been damaged by missed loan payments, all is not lost. At Clean Credit, we specialise in repairing your credit score. We understand that missed payments and defaults can happen to anyone. Don’t be stuck in the consequences of a default. Call us today on 1300 015 210.