We know that life can get hard sometimes. It can come as a surprise that all of a sudden you realize that you will not be able to make a loan payment. Solutions to this issue can be easy, but the key is to move fast to avoid causing more damage to your finances and credit history.
Consequences of not paying
If you stop repaying your loan, you will default it over time. This can be a big problem if you are not careful. Usually, if you skip a payment or two, your account could be listed as “delinquent,” but you can get back on track by paying the amount owed. Although, If you are still not paying and default your loan, there are some major issues that can result:
- Credit score damaged. One of the most significant components of your credit score is your payment history, so a lack of payments will have a big impact on your credit score.
- Legal issues. Lenders send the accounts to collections agencies when they believe that you will definitely not repay the loan. This damages your credit score as well and you can even get a court judgement, which will end up being quite expensive. In the latter case, lenders can even take assets from your accounts or garnish your wages.
- Costs. When you miss payments, you will be incurring penalties and fees that are only triggered with this given situation. This will end up increasing the total amount you owe for the loan.
You have to also consider that depending on the type of loan you have, the potential risks you incur by defaulting your account are different.
- For Unsecured loans: The risks are potentially lower than the risks of a secured loan, but your credit score can still be highly damaged and your debt might go to collections as well.
- For Secured loans: with this type of loan you are required to secure your loan with collateral. This can be your car or your house, for example. So, when you default your secured loan, you are triggering the collateral so the lender can claim it as a repayment of your debt.
For these reasons, it is important to move fast as soon as you realize that you will not be able to repay your loan.
What to do if I am not able to repay my loan
As you have seen, defaulting your debt is something to avoid at all costs. The impact on your credit score and finances will be huge and the path to recover from it is long and tedious. Fortunately, there are some ways to avoid defaulting your loans.
- Late payment. Certainly, paying on time is the ideal thing to do, but in this case, when you are struggling to repay, paying late is better than not paying. A slight delay (under 30 days late) on your payment should not be a major issue.
- Contacting your lender. If you keep struggling to make your monthly payments, you can try to contact your lender and explain your situation. Lenders prefer to see good faith from the borrowers and they can be understanding about your situation. They might even offer you an alternative plan to repay your debt
- Documenting. If you come to an arrangement with the lender, you want to keep all the important documents. This will save you headaches in the future.
- Meet with a professional. A credit counselor can provide you a solution to your situation. He can help you set a debt repayment plan that suits your current financial situation.
- Consolidate your debt. There are personal loans made for debt consolidation. Often offered by online lenders, they allow you to combine different debts into one payment that suits your current financial situation, and they allow you to repay your debts. With this type of loan you get more accessible conditions for repaying your debt, but in the end you will be paying a larger amount than the amount of the original loan.
Our loan recommendations
Crediverso has some key partners that provide loans for different necessities. Here you can learn about some of our partners and what they offer.
|Loan amount||$1,000 – $50,000|
|APR||3.50% – 35.99%|
|Minimum Credit Score||600|
Upstart is a great option if you have fair credit. They also offer prequalification with a soft credit check, so you do not have to worry so much about your credit score being damaged. Their loan terms are for 3 or 5 years with flexible payment dates. Keep in mind that they charge an 8% origination fee. This is a great option if you need money fast and have fair credit.
|Loan amounts||$1,000 – $35,000|
|APR||5.94% – 35.97%|
|Minimum Credit Score||580|
With Upgrade Personal Loans you can use the loan amount for anything, including debt consolidation. They offer direct payment to third-party creditors and they do not have any prepayment penalties. The origination fee can go from 2.9% – 8%.