If you’re like most people, you have a number of monthly expenses that you need to budget for. This can include everything from rent or mortgage payments to car loan installments and credit card bills. But what happens if you accidentally miss a repayment on a loan? Missing a loan repayment can have negative consequences for your financial health.
Immediate consequences if you miss a loan repayment
Not making a loan payment can cause issues, whether you genuinely couldn’t afford it or you simply forgot. The majority of lenders have a go-to missed payment penalty that they charge to your account when you don’t make a repayment on your loan. This is typically charged for all types of missed payments – even if you rectify the mistake within one or two days.
Late fees
Most lenders will charge a late fee, which can be a flat rate or a percentage of the outstanding balance. This fee is usually applied even if you rectify the missed payment within a day or two. f you don’t make the payment within the specified time frame, you could be charged with more late fees until it’s paid in full.
Additional interest
Since your account balance won’t reduce as scheduled, you’ll accrue additional interest on top of the missed amount. In other words, by missing a payment, you increase the total amount of interest payable for your loan.
Short-term impacts
If you neglect to pay your missed repayment for more than 14 days after the due date, you risk having the negative event recorded on your credit file. A late payment – paid between 14 and 60 days after the due date – may be recorded on your credit file even if the amount owing is minor.
Grace period
Many lenders offer a grace period of up to 14 days for customers who miss a payment. If you make the payment during this time, you may avoid more serious consequences.
Credit score impact
If the payment remains unpaid for more than 14 days after the due date, it may be recorded on your credit file as a late payment. This can negatively affect your credit score. The credit reporting bureau, Equifax, considers a repayment that is made between 14 and 60 days after the due date to be late, and more than 60 days after the due date as a default.
The long term consequences when you miss a repayment
Understanding the difference between various missed payments is important to know how credit providers and reporting bureaus will classify them. This distinction largely depends on the length of time it takes you to make a repayment after its due date.
- Default: If a payment is more than 60 days overdue, it may be recorded as a default on your credit report. Defaults can significantly damage your credit score and remain on your credit file for up to five years.
- Debt Collection: For repeated missed payments, the lender may refer the debt to a collection agency.
- Legal Action: In severe cases, the lender may take legal action, including court judgments.
- Repossession: For secured loans, the lender may repossess the collateral used to obtain the loan.
What you can do if you miss a loan repayment
If you know you’ll miss a payment or are struggling financially:
- Contact your lender immediately. If you are struggling to make your next personal loan repayment, contact your credit provider as soon as possible. They might be able offer help with finances such as an extension or flexible payment plan.
Be aware that this may depend on why your payments are late in the first place, as most lenders have specific standards for what counts as financial hardship. - Seek financial counselling or advice if you’re experiencing ongoing financial difficulties.
- Consider debt consolidation options if you’re struggling with multiple debts.
A good credit score is important for your financial health. Understanding this information can help you make the best choices for maintaining a good credit score. If you do discover a negative listing due to a miss loan repayment on your credit report, you can contact a credit repair company like the team here at Clear Credit Solutions for assistance.
