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What Happens If I Don’t Repay My Loan on Time?
There are multiple reasons why a borrower may fail to pay their loan on time, including job loss, business loss, natural disaster or a recent divorce or death. Whatever the reason, failure to fulfill your loan obligation when due can lead to severe repercussions.
In this article, we’ll highlight the potential consequences of failing to pay a loan on time. Granted, you aren’t guaranteed to suffer these repercussions, and everyone’s loan agreement is different, but here’s a list of things that could happen if you miss a loan payment deadline.
- Your Credit Rating May Take a Hit
No surprise here — one of the very first things you can expect when you fail to pay your loan on time is a dip in your score. A less-than-perfect credit rating can limit your ability to take out more credit down the road. And if you’re approved for credit, you’ll likely be subject to high interest rates. Additionally, it can make it hard for a prospective employer or landlord to accept your application.
- Court Summons
Depending on the type of loan and which loan provider you choose, you may get sued for defaulting on your loan. This may lead to wage garnishment and even liens against your assets, such as your vehicle, home, savings, or investment accounts.
- Late Fees
If you do not make your loan payments on time and in full, you could face late fees. While late fee amounts vary from lender to lender, additional charges on your loan amount can put unnecessary pressure on your finances.
How to Avoid Missing Loan Payments
Fortunately, these dire consequences can be avoided. Here are steps you can take to prevent a late payment from happening.
- Request a Delay of Payment
Lenders are human, and they know sometimes borrowers can miss payments due to factors out of their control. What’s more, loan terms and conditions are never cast in stone; they can be changed. For this reason, don’t be afraid to call your lender and explain your situation.
The lender may provide a grace period after the deadline, allowing you to pay your loan without penalty.
- Create a Budget
Come up with a budget that’ll help you cut your expenses and track your income. When you cut your expenses, you’ll find yourself with extra money, which can go towards paying your loan. The extra money also means you’ll be able to make more frequent loan payments instead of waiting until the due date. Making frequent payments can save you quite a lot in interest rates, not to mention it’ll get you out of debt faster.
- Take Advantage of Balance Transfers
If you have a card with a balance that can help you make your loan on time, you can take advantage of it to avoid late payment and resulting consequences. But make sure you’re confident you can pay the credit debt while the low or 0% interest period lasts.
As you can see, missing a loan payment can negatively affect your credit and lead to more interest rates and fees. Be smart. Always strive to pay your loan on time or as soon as possible.