Taking out a personal loan can be a great way to consolidate your debt and save money. However, it isn’t a perfect solution. In some cases, personal loans can worsen the problem and cause you to fall behind even more. According to American Banker, 1.9% of all bank-issued personal loans were at least 30 days delinquent in the third quarter of 2017.
But what is a delinquent loan, and why is it such a big deal? Find out what the consequences are if you miss your payments, and learn how to get back on track.
What is a delinquent loan?
When you apply for a personal loan, you agree to specific terms and conditions, such as when you have to make a payment each month.
When you fall behind on your payments, the lender considers your loan to be delinquent. Some lenders offer a grace period of a few days, while others consider your loan to be delinquent if you’re even a day late.
If you don’t make your payment and miss the grace period, the lender will consider your account to be in default rather than delinquent. Loans in default have harsher consequences.
Some lenders consider you to be in default if you’re a day late. Others, such as SoFi, give you as long as 30 days before you enter default.
6 consequences of falling behind on your personal loan payments
Becoming delinquent or entering default on your personal loan has serious repercussions. If you miss payments, you might face the following consequences.
1. You could lose your assets
If you took out a secured personal loan rather than an unsecured personal loan, that means you had to put up an asset — such as your home, vehicle, or savings account — as collateral.
Doing so might have helped you get a loan with a lower interest rate, but if you miss payments, your lender could seize your assets. You could end up losing your home or other valuables.
2. You’ll be subject to late fees
Regardless of the type of personal loan you have, becoming delinquent on your loan means you might be subject to late fees. For example, if you have a Discover personal loan and don’t make your monthly payment by its due date, the company will charge you $39.
Continue to miss payments, and the late fees can grow. As late fees build up, more interest accrues on your account.
3. Your lender can send your account to collections
When your loan enters default, the lender can send your account to collections. According to the Federal Trade Commission, that means debt collectors can contact you to try to get you to make a payment.
If you don’t make payments, the lender or debt collection agency can sue you and get a judgment against you. If that happens, it can work with your bank or employer to garnish your wages.
4. Your credit score might go down
When you miss a payment, the lender will send a notification to the three credit reporting agencies — Equifax, Experian, and TransUnion. Falling behind on your payments can cause your credit score to drop. How much it falls depends on your unique credit profile.
5. You won’t be able to qualify for other forms of credit
With a low credit score, it’ll be hard to qualify for other types of credit. If you’re planning to buy a home, purchase a car, or take out private student loans to pay for school, your delinquent personal loan can prevent you from being able to do so. That obstacle can force you to put your plans on hold while you deal with your late payments.
6. You might have to pay your loan in full right away
Depending on your lender, you might have to come up with thousands of dollars at once if you become delinquent on your debt. If you miss a payment, your lender could demand that you pay the remaining balance and late fees right away.
What to do if you fall behind
Becoming delinquent can have a significant impact on your credit and finances. If money is tight and you’re in danger of falling behind, it’s important to be proactive to avoid the consequences mentioned above.
Here are four ways you can prevent becoming delinquent:
- Contact your lender right away: Some lenders offer temporary forbearance, which allows you to postpone your payments for a few months if you’re facing a hardship like unemployment. Entering forbearance can give you time to get back on your feet without wrecking your credit.
- Sell your possessions: To come up with money quickly, consider selling some of your extra possessions, including clothes, accessories, electronics, or furniture. You can use the cash you earn to make your payment on time.
- Take on a side hustle: If your income isn’t high enough to keep up with your debt payments, launching a side hustle can help you earn more money and avoid delinquency.
- Ask friends or family for help: Although asking for help with a financial crisis might feel embarrassing, it can be worth it to avoid the consequences of becoming delinquent.
Improving your credit
If you’ve ever wondered what a delinquent loan is, you now know the consequences can be severe. However, if you were delinquent and are now getting back on track, it’s important to know you can boost your credit score and recover from missed payments.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|