What Happens If I Can’t Afford to Make My Loan Payments On Time?
The unfortunate truth? The American economy can be difficult to predict. Unemployment is on the rise and those with jobs sometimes have a hard time keeping them. In fact, the job market can be just as unpredictable as the economy, with the frequent risk of salary and staff cuts. On top of this, the real estate market is also not in an ideal place, with the value of homes constantly dropping. So, it’s no surprise that many Americans have trouble keeping up to date with their loan payments. If this is the case, what are the consequences?
Everyone’s financial status is different. Because of this, the way they tackle their debt will also be different. If your debt is becoming a problem, there are ways that you deal with it and stabilize your financial situation.
For more information on your debt relief options, click here.
The Consequences of Late or Missed Payments
Before we get to the ways you can improve your debt situation, you’ll need to first learn about what will happen if you start making late payments or miss them completely. The consequences of defaulting on different types of loans vary so think about which category best applies to your situation.
A Car Loan
One thing that you need to remember about vehicle loans is that your vehicle is a physical piece of property. Therefore, a continuous streak of late or missed payments could lead to it being seized by your lender. While repossession will only occur under the most extreme of circumstances, it’s important to know that it is indeed a possibility.
When it comes down to it, what your lender really wants to know is that you’ll be able to pay off the outstanding balance of your loan some day. So, if you’re late on or miss one payment but have a good track record of paying your debt previously, then your lender likely isn’t going to seize your vehicle. At most, they’ll charge you some sort of fee or late charge. However, they will start looking into your case to make certain this payment problem isn’t cause for alarm. From that point on, any more late or missed payments will only make things worse. In fact, if the situation continues as is, your lender could end up notifying the major United States credit bureaus, Equifax, Experian, or TransUnion. Your credit score will then be damaged with every defaulted payment. If months go by and you keep missing payments, the lender might go so far as to hand your account over to a debt collection agency.
Are you having trouble dealing with auto loan debt? Read this.
A Mortgage Loan
Just like you would see with a vehicle loan, too many missed payments could lead to your home being seized as collateral. This will also only happen under extreme circumstances but is still a possibility that needs to be considered before you try to purchase a house that is not within your price range.
Since a typical house in the United States can cost hundreds of thousands of dollars, it’s best that you talk to your lender or creditor about all factors, such as equity (should you ever decide to resell the house) and possible payment schedules. Actually, some lenders might even offer the option of suspending your payments for a certain time or missing a payment here and there with no serious consequences. However, this is typically handled on a case by case basis so it’s very important that you discuss all the details with your lender beforehand.
What does it mean to be “house poor?” Click here to find out.
A Personal Loan
As with other kinds of loans, the consequences of being late on or missing one personal loan payment will not be too severe, depending on your lender. However, if the missed payments continue and your lender determines that you are not ever going to pay them, they have the legal right to take you to court. At this point, the lender will make the credit bureaus aware of your case and your credit score will drop, affecting your creditworthiness and making it harder for you to be approved for loans in the future.
Remember, there are differences between having a “secured” loan and having an “unsecured” loan. With a secured loan, your assets (your car, house, etc.) can be used as collateral, resulting in them being seized if you default on your loan. Since an unsecured loan requires no collateral, the lender will then be able to turn your account over to a collections agency and you will have to deal with them from that point on.
What You Can Do
There are various ways to deal with the debt that comes with each type of loan. If you’re having a difficult time affording your loan payments or think that you are in danger of being late or missing them altogether, it’s best to act right away by:
Notifying Your Lender
If you feel you’re at risk of defaulting on your loan, the first thing you can, and absolutely should do, is to notify your lender to inform them that it’s a possibility that you won’t be able to make your next payment on time. When money is an uncertainty, meaning you’re not sure whether or not you’ll be able to afford your payments, sitting on your hands and avoiding your lender will surely lead to further debt problems and more severe consequences. Remember, your lender just wants to be sure that you will pay your loan in full, no matter how long it takes. So, before things get worse, you can talk to them and negotiate a more reasonable payment plan or another debt management solution.
Negotiating for a Better Loan Plan
Think about this: if you’re late on or miss one payment, does it mean you’ll be at risk of this continuing in the months to come? While one missed payment may have been a simple mistake on your part, consider the possibility that it will happen again in the future due to other financial issues. While it might not be necessary at the moment, reviewing all your repayment options with your lender is a smart thing to do, just in case anything should happen that is out of your control.
Discuss every possibility with your lender, such as reducing the interest fees and the cost of your monthly payments. While you’ll be in debt for a longer period, it might even be better for you to extend your repayment term so you’ll have more time to gather enough funds. Depending on your chosen lender, they might not have such options, but asking about it could save you a lot of trouble in the future.
Making a Budget and Earning More Income
This is one of the more commonly heard of solutions to both loan payment problems and financial situations in general. Simple, but effective, something that will help you if you’re having trouble affording your loan payments is to maintain an effective budget, manage your expenses by not spending money on unnecessary things and, if it’s a possibility, try to earn and save more money. We know, in today’s economy, getting a promotion, wage increase, or higher paying job isn’t always feasible. However, if you feel like you might be at risk of defaulting on your loan, it’s better to deal with the stress of working harder than the stress of having too much debt or the stress of dealing with a collections agency. If you are able to make these changes, it might take time, but you’ll start to see your situation improving.
Speaking to a Professional Credit Counselor
When loan payments start to become a serious problem, ignoring that problem will only lead to further financial issues. For that reason, it’s a good idea to be proactive and discuss your situation with a professional who deals with cases like yours every day. A trained credit counselor will look at your financial position without judgment and give you some much-needed advice. Afterward, you’ll be able to get back on track and get your loan payments under control, improving your financial life in the process.