What to Do If You Can’t Pay Back a Personal Loan
The worst has happened and you’ve just realized you can’t afford an upcoming personal loan payment. When you miss the payment deadline on a loan, you’re considered delinquent. In America, the delinquency rate of all consumer loans is 2.3%.
Take a moment to breathe. Missing a payment can be terrifying, but it’s not the end of the world. Lenders anticipate a certain percentage of their borrowers will have difficulty paying them back.
When you can’t pay back a personal loan, be proactive. It’s time to protect your financial security and establish good faith.
We’ll cover what happens when you’re late for personal loan payments and provide some tips to handle the situation.
You Can’t Pay Back a Personal Loan: What Happens Next?
When you first applied for a loan, you were prepared to pay it back in full. But sometimes life doesn’t make this easy. You’ve likely experienced an issue with your employment or suffered the expense of an unexpected emergency.
65% of borrowers miss a payment due to money constraints. The other third simply forget to make the payment in the first place.
Whatever the case may be, now you’re wondering how missed payments are going to affect you and your family. Keep your chin up. It’s not as bad as you might think.
As soon as you miss your payment, your lender will hit you with a late fee. Although they’re unpleasant, these don’t tend to be extortionate fines.
Once you’re exceptionally late with your payment, the lender will inform credit bureaus and your credit score will pay the price. You’ll also have to deal with calls from debt collectors. Since debtors’ prisons are illegal, the worst you’ll experience is a court summons and garnished wages.
Okay, so now you know what the extent of the damage is. But what can you actually do to take control of the situation when you can’t pay back a loan?
Here are some preventative strategies to take before it gets worse:
1. Call Your Lender
When you’re certain you’ll be late on a personal loan payment, call your lender. Nobody wants to be the bearer of bad news, but it’s better than the alternative of saying nothing at all. Lenders are used to negotiating with struggling borrowers.
First, realize they may need some convincing. To curtail scammers, the lender will want to be sure you cannot pay without assistance. If they didn’t do this, every borrower would call just to score a better deal.
Once you pass that obstacle, there are a variety of ways a lender can help. This could be as simple as moving your due date or allowing you to skip payments until a specified time.
If things are really desperate, your lender may be willing to reach a settlement — but your credit score will still take a hit.
2. Make a Late Payment
So you might miss the due date. That doesn’t mean your credit score will come crashing down. In fact, it might not affect your credit at all.
Your lender will not immediately report the late payment to credit bureaus. Even if you make a postponed payment a week later, your credit will remain intact. This gives you an incentive to pay as soon as possible, even if you’re going to miss the deadline.
Did you miss the deadline because of an emergency? These things happen. That’s one reason lenders can be forgiving.
But when you consistently miss the payment deadline, consider changing the payment schedule. It’s not always possible to pay all the bills in the same timeframe. If you spread them out, you’ll be more likely to have the cash on hand to pay promptly.
3. Consolidate Your Loans
Find financial security with a new personal loan. This could mean refinancing your loan with better terms, such as a lower interest rate. Even small changes can lead to big savings and smaller payments.
If you can’t pay back a personal loan because of other bills — such as credit card payments — then debt consolidation is a great option. To consolidate your debt, you take out another personal loan to pay off any outstanding loans you might have.
Personal loans tend to have kinder interest rates than credit cards. By consolidating, you effectively reduce the interest you owe on your current debt.
As an added bonus, a personal loan could have a longer payback period — and you won’t have to start paying right away. Although you’ll make more payments overall, each payment will be significantly smaller than what you’re paying now.
4. Pay for the Important Loans
When all else fails, put yourself first. You have the luxury of picking and choosing which bills to pay with your limited income. Always prioritize loans that pay for important assets, such as your car and home.
Without these, your career and livelihood could be at risk. When times get tough, personal loans tend to be ignored in favor of more important payment obligations.
You’ll still have to suffer the credit score penalties of missed payments, but it’s better than being evicted or without transportation.
Get Back on Your Financial Feet
When you can’t pay back a personal loan, it’s easy to spiral into a financial sinkhole. Late payment penalties, growing interest, and a degrading credit score can complicate repayment plans. That’s why it’s important to take action at the first sight of trouble.
Bonsai Finance works hard to provide borrowers with lending solutions and sound financial advice. Consider a debt consolidation loan from us to lower your monthly payments.
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