Needing to borrow more money these days? This is the story for people all around the country. In fact, in late 2022, personal debt levels reached record highs thanks to customers fighting rising inflation as well as rising interest rates.
When you juggle multiple loans with so many expenses, missing a small loan payment becomes far likelier. However, many borrowers would be less likely to miss a payment if they knew what the penalty for doing so was.
What is the penalty for a missed payment on a small loan, and what can you do to keep this from happening? Keep reading to find out!
When it comes to missing a small loan payment, the first thing you should know is that the penalties may vary. In some cases, they vary from institution to institution. That’s why it’s so important to check the fine print regarding penalties before you take out a small loan.
Most of the time, though, the penalties vary by how long you go before making a payment. When it has been less than 30 days, the penalty is likely to be very mild. After a few months, though, the penalties get much harsher.
How much harsher? Below, we have a breakdown of what penalties you can expect based on how long you go without making payments.
If they are being honest, most people have missed a small loan payment from time to time. It’s easy to forget about payments when you get busy or distracted throughout the year. And sometimes, technical issues may be a factor (for example, if you thought you made a payment via your phone, but the payment didn’t go through).
Most lenders understand this kind of thing may happen from time to time. Therefore, so long as you make a payment before more than 30 days has passed, lenders will not report your missing payment to the credit bureaus.
In some cases, you may be able to communicate with the lender (more on this later) to avoid getting a penalty, especially if this is a first-time mistake. However, you should be prepared to pay fees and penalties for missing payments. Such fees and penalties may be for a fixed dollar amount or they may even be for a percentage (such as five percent) of how much you owe.
Another way of looking at missing a small loan payment is this: things don’t get really serious until you have missed a payment for more than 30 days. And the penalties only get worse the longer you go without payment.
For example, after 30 days of no payment, your lender will report you to the major credit bureaus. And this is important because being marked as a delinquent by your lender can stay on your credit report for up to seven years.
If you go longer, such as 60 days without payments, your lender will continue to report you to the credit bureaus. Even worse, every 30 days of missed payments show up as a separate mark on your credit report.
Should you go 90 days or more missing your payment, then the loan may go into default status. Quite literally, this means that you have defaulted on the original loan agreement with your lender.
After an extended period (usually six months) of no payments, your lender will likely charge off your account and sell your debt to a collection agency. This means that while you may no longer hear from the lender directly, you will still have to deal with people trying to collect on what you owe.
Perhaps the biggest issue with missing payments concerns your credit score. It’s important to have a good credit score so that you can qualify for solid interest rates and larger loans such as mortgages. However, if you miss small loan payments, it can send your credit into a spiral that is difficult to recover from.
As we noted before, every 30 days of missed payments become a separate mark on your credit report. If you default on the loan after time, that sinks your credit even further.
Should your debt end up with collectors, the debt is now a separate account that further drags your score down. And debt collectors may resort to lawsuits that may result in liens, garnished wages, and other negative financial outcomes.
If you’re worried about your credit, defaulting on a loan due to missed payments brings your score down in a big way. Aside from a bad credit score and your account eventually going into a collections status, the scariest thing about defaulting is potentially losing your collateral.
And if you have a secured loan, it means you put down something you own as collateral. Most people use things like cars for collateral, but other borrowers may even use their own homes. Should you default on a loan with collateral, it means the lender can legally seize your collateral as its own property.
Even if you didn’t have a secured loan to begin with, defaulting on a loan can hurt your credit so much that you only qualify for secured loans. This means you’d have that much more to lose if you continue to miss payments in the future.
If you’re really worried about what happens to people missing a small loan payment, it’s important to memorize these three little words: “communication is key.”
If you communicate early to a lender about your inability to make a payment, you may be able to avoid some of the fees and penalties. And in many cases, a lender may offer special repayment terms if you can demonstrate financial hardship.
Of course, the best thing any borrower can do is to first find an understanding lender to borrow from!
Now you know the penalties for missing a small loan payment. But do you know where to find a trusted lender when you really need money?
Here at Fast Loan Direct, we specialize in providing the loans you need at the rates you’ve been dreaming of. If you’re ready to get the best loans from the best lender, come apply today!