Key takeaways
Nobody ever really wants to miss a loan payment. But it happens sometimes. What are the consequences of missing a loan payment? We’ll let you know in this article!
- While missed loan payments are not ideal, negative impact to a borrower’s credit score can be avoided if the late payment is made within 30 days of its due date.
- Once the late payment goes beyond 30 days, a borrower’s credit may take a hit. Make the late payment as soon as you realize it’s past due.
- There are ways to stay on top of your finances and loan payments to ensure you don’t miss one and to protect your credit score.
What happens if I miss a loan payment?
What should I do if I miss a payment?
How will missed payments affect my credit score?
If you’re like most people, you’ve probably lost track of how many payments you need to make each month. There’s your rent or mortgage, utility bills, cable/internet, car loans, student loans, groceries–the list goes on and on. And sometimes, even though we all try our best, a payment slips through the cracks.
It’s not a catastrophe if you do miss a loan payment. However, there are consequences, since lenders are very serious about getting their money on time. Each loan is different and has a variety of terms and conditions that the borrower is responsible for following. The good news is that there are some best practices you can follow to avoid missing a loan payment as well as the negative effects a missed loan payment can have.
What happens if I miss a loan payment?
The answer to this question depends on a couple things…the terms of your loan and how late your payment is. Like we mentioned, each loan offers different terms, and that includes potential grace periods for missing a payment and possible penalties that the lender will assess if you do miss a payment. Let’s take a look at what may happen during different time frames of a missed loan payment.
Less than 30 days past due
Thirty days past due means you have not made a payment on your loan in 30 days. This is important to remember because for payments made less than 30 days late, creditors do not report a late payment to the credit bureaus. That happens once the 30-day mark arrives. That said, your lender may still charge you a late fee because you missed your payment deadline. And that penalty could cost you between $10 and $50 or anywhere from 3% to 6% of your monthly payment. Late fees differ from lender to lender, but they are regulated by state and federal laws.
30-60 days past due
When you make a late payment on a loan, but you’re less than 30 days past due, you’ll likely escape with just the late payment penalty. When you reach 30 to 60 days past due, your credit history will probably be impacted.
Payment history is the number-one factor that determines your credit score. For FICO credit scores, payment history accounts for 35% of your credit score. Even one late payment can do plenty of damage to your credit. Between 30 and 60 days past due, your late payment will most likely be reported to the credit bureaus, which will affect your credit history. According to NerdWallet, a payment that’s more than 30 days past due can knock as many as 100 points off your credit score.
60-90 days past due
Some lenders don’t report late payments until 60 days have passed. But that’s less common than action being taken after 30 days. Either way, the later your payment is, the worse it is for your credit. Once your loan payment reaches between 60 to 90 days past due, your lender will continue to send statements and requests for payment. Keep in mind…on top of the damage being done to your credit score as the credit bureaus continue to report the late payments, you’re also starting to pile up quite a few late fees, which can be hundreds (if not thousands) of dollars.
H90-120 days past due and later
At some point from 90 to 120 days past due, the lender will stop reporting your account as delinquent and start reporting it as being in default, which is the failure to make the required interest or principal repayments on a debt. Once this is added to your credit reports, your score takes a major hit. And that puts you at risk of not being able to take out loans or receive good interest rates in the near future.
120 days past due and later
At this point, lenders simply give up on collecting a payment from the borrower. What happens to the loan at this point? Some lenders sell the debt to a collection agency, which will try to collect payment from the borrower–and possibly sue the borrower for the amount of debt they owe. The collection agency may also take other measures, including putting a lien on a borrower’s assets. This means that the agency could legally take ownership of the borrower’s property or money until the debt is paid.
Lenders and Collection agencies often garnish a borrower’s wages through the legal system; this process allows the agency to deduct money from the borrower’s paychecks until the debt is cleared. If that wasn’t enough, those late payments can show up twice on the borrower’s credit reports–one with the original lender and the other with the collection agency if the debt has been sold. And that can stay on credit reports for seven years or until the debt is resolved.
What should I do if I miss a payment?
Yes, some of the information we just provided can seem intimidating…but if you missed a loan payment, don’t worry! Paying it late is better than not paying it at all. And the sooner you pay, the better. Just contact your lender as soon as you realize your payment is late–doing so can actually help reduce or even prevent late fees from being charged. Plus, the lender can work with you to create a plan for your loan payments so you don’t miss another one.
If you have a personal installment loan with Sun Loan, we’re here to help you if you missed a payment. Just click here to contact us!
Here are a few more tips you can use to help fix a missed payment and avoid future late payments from occurring:
- Contact your lender first to see if they can help reduce the late fees and create a plan for you moving forward.
- Review your budget to ensure you have the money you need each month to make your payments on time.
- Sign up for payment notifications. Just about every lender has an app or a website that allows you to sign up for email and text alerts letting you know your payment is due soon.
- Set up automatic payments. Similar to reminder notifications, lenders offer auto-pay options that either take the loan payment amount out of your checking or savings account each month or charge a debit card. This helps guarantee your payments are made on time and that you won’t forget one.
What if I can’t make my payments?
If your budget no longer allows you to afford your loan payments, reach out to your lender immediately to discuss your financial situation. There may be a couple of options that can help, such as:
- Negotiating new loan terms to help make the monthly payments more affordable.
- Changing the due dates for your payments; for example, if you know you get paid on the 15th of each month, you may be able to make your payment due a few days later so you know you have the funds in your bank account before your payment is due.
- Forbearance, which is a temporary suspension or reduction of your monthly payment, could be an option a lender suggests.
- Similarly, you may qualify for a loan deferment, which pauses your payments for a certain period of time without the loan accruing interest.
The most important takeaway is to contact your lender if you can’t make your loan payments. They’re the ones who can work with you to figure out a solution.
How will missed payments affect my credit score?
As we covered earlier, if you make your late payment within 30 days of its due date, there will be no impact to your credit score–though you may be charged late fees. If you’re more than 30 days late, your credit score will be negatively affected. And the longer you wait to pay, the more your credit score will be impacted.
According to FICO, a 30-day missed payment can result in a fair credit score dropping between 17 and 37 points, and a very good or excellent credit score dropping between 63 and 83 points. That is a significant drop, but it gets worse the longer you wait. A 90-day missed payment drops the same fair score between 27 and 47 points, and the very good or excellent score between 113 and 133 points. That’s why, if you know a payment is late, it’s best to pay it as soon as possible to avoid further damage to your credit score.
Missed payments can be addressed with being proactive
While we all want to pay our bills on time, it’s important to remember that we’re all human. We forget, we make mistakes…and that’s okay. Missing a loan payment is not a failure. Rather, it’s an opportunity to better organize your finances and your time moving forward.
If you miss a payment, contact your lender and make the payment as soon as you’re able. From there, take a positive approach to the missed payment by setting up reminders and automatic payments. This is the perfect opportunity to regain control of your finances. And by doing so, you’ll be on top of the situation, you’ll better understand your budget, and you might even be able to save yourself some money by cutting back in certain areas.
FAQs
What happens if you miss a loan payment once?
If you miss one loan payment, and you make the payment within 30 days of its due date, you may only be charged late fees. If you begin to miss multiple payments or are making payments later than 30 days past due, it will be noted in your credit reports, and your credit score will be negatively impacted. Contact your lender to discuss options if you miss a loan payment.
How late can you be on a loan payment?
You can make a late payment on your loan at any time within 120 days, but your credit score will take a hit. Within 30 days, and in some cases 60 days, lenders may just charge you late penalties. Beyond 60 days, you may be dealing with collections agencies. Small claims action may also result. The best advice is to contact your lender and make your late payment as soon as possible.
How does a missed payment affect your credit score?
It depends on how late the payment is. Again, if you make the payment within 30 days past due, you may be charged a late fee, but your credit score won’t be impacted. If the late payment is made beyond 30 days, the lender will likely report this to the credit bureaus, and it will be noted in your credit report. Anything past 60 days, your credit score will definitely take a hit.