What Happens if You Miss a Loan Payment?
Once you have secured a loan and funds are in your account, it is time to start repaying the principal and interest amount to your lender. Despite the fact that you are well aware of all the terms and conditions of the loan agreement and your liability to stick to them, life has weird ways of putting us through unexpected circumstances every once in a while. You might have to face some kind of financial crunch that makes it a lot more difficult to keep up with your monthly installment payments. So then what exactly happens if you end up missing out on an installment? Have a look.
Your Creditor Will Contact You
In the event that you fail to make an installment payment by the stipulated due date, you will most probably get a reminder call from your lender asking you to catch up on it as soon as possible. Typically, your creditor will charge you a late fee (as per the terms of your loan agreement) for the payment delay and ask you to clear your dues at the earliest possible. However, some lenders also offer a certain window of a few days known as the grace period for you to cover for your late payment, in case it is the first time that you have encountered such a situation.
Your Credit Score Will Likely Change
Although, missing out on a single payment will not permanently damage your creditworthiness or make you ineligible for any future financing, it will definitely bring your credit score down by a few figures. In case you are able to repay the missed installment within the grace period offered by your lender, your default will not be recorded on your credit rating. However, it is always advisable to ensure timely payments to avoid getting a blot on your credit.
Your Loan Will Default
In the event that you have not caught up with your missed payment installment within 60 days of the due date, you loan account will fall into the category of default. This implies that your credit score will be deeply impacted and you will face considerable issues in securing a financing for several years. Your creditor will send you a letter of default via mail to inform you that you must make the payment at the earliest to avoid escalating the matter any further.
Collection Agencies May Get Involved
If you have missed out on a single installment payment, you need not worry about bill collectors relentlessly trying to reach out to you. Your lender will probably make a few friendly reminder calls to notify you that your payment is overdue. However, if you intentionally make it a habit to default on your payments, you might have to experience some discomfort with collection agencies running after you for funds.
It is a good idea to plan out your monthly finances in such a way, that you have the required installment amount set aside for timely repayments and do not fall into the vicious trap of a tarnished credit.