Failing to repay your loan will be detrimental to your finances. At best, you will have to pay more in the long run. At worst, you will be taken to court and charged thousands more than the original plan and no other lender will touch you.
If you’re worried about repayments, you should use a lender with a flexible policy. For example, CreditNinja loans offer a flexible repayment schedule that can easily change to match seasonal work or other changes in income.
The Timescale Of Missed Repayments
Depending on when you miss your repayments, different penalties will be given. Most lenders have a grace period, where they try to get in contact with you about the situation before turning to more dramatic avenues.
Each lender will be different but the following timeline can be expected.
30-Day Billing Cycle
During the first 30 days of your billing cycle, your lenders won’t be checking to see if you make a payment. To avoid any issues check with your lender and ask how much you should pay back, and by when.
Most lenders use a 30-day billing cycle, but some will choose 29 or 31. Once the billing date has passed, the lender checks if you have paid the minimum requirement. If not, you will be charged a late fee.
Even if you are one day or one hour late, the fee will be charged. These charges vary, but lenders are upfront about the cost. Most will charge around 5% of the outstanding loan.
Day 30 To Day 60
If another billing cycle passes and you haven’t paid the minimum amount, this stops being classified as a one-time issue. Your account will be considered “delinquent”.
You will be on the lender’s radar as a problem account and a negative mark will be placed on your credit report. Other lenders will see this mark for no more than 7 years.
If you are unable to pay due to personal circumstances, it’s best to tell your lender so they can freeze your account. This means you cannot take money out, and they cannot charge you. It will remain frozen until your circumstances change or until a set date.
Day 60 To Day 90
A third billing month has passed now. The lenders will be trying to contact you. This will be in email, letter, text, and phone format (as long as they have this information).
As with the previous billing month, this failure will be added to your credit report. As will the charges.
Day 90 To Day 120
At this point, your lenders have allowed a slip, tried to contact you, and then raised an issue on your credit report.
With no response and no change in your failure to pay, your status will change from “delinquent” to “defaulting”. The change comes with greater repercussions.
At this point, the lender will ask a third party or the lender’s collection department to get involved. These people search for your current location. They might contact your other lenders and learn how large your total debts are and work together to get a case against you.
Day 120 And Beyond
If your borrowing amount is low, the lender might charge off your debt. This is because locating, bringing you to court, and hiring a solicitor to retrieve the finances might not be worth it.
A job like that would cost tens of thousands of dollars. If you’ve only borrowed $5,000, the hassle isn’t worth it.
Charging off your account isn’t a good thing though. This information will be added to your credit report. Then the lenders will get their money back by selling your debt to a third party.
For example, if you borrowed $5,000 and failed to pay any back, the lenders might sell your debt for $4,000. This means they will only lose $1,000 instead of $5,000. The third party can then charge you the $5,000, and they can gain a profit of $1,000.
However, if you have borrowed a large sum of money, like a mortgage, for example, the lenders can take you to court and force you to pay (normally by making you sell your possessions).
Prison isn’t normally on the table, as the lenders will still be out of pocket. Instead, the courts may decide that a portion of your wages will go straight to the lender until the debt is paid off. This could happen every month for the rest of your life.
How Not Paying Affects Your Credit Score
Missed payments account for 35% of your score. Failure to pay will have a dramatic impact on your credit report even if you’ve had decades of good credit.
However, if you are new to lending or if your credit score isn’t great already, your score could plummet.
This means fewer lenders will allow you to borrow. Even phone companies may reject your contract.
Failing to repay your loans will have an automatic negative effect on your credit score, but allowing it to continue will make things worse. You should pay your minimum fee at least a day before the final payment date, so you know you are safe.
If you find yourself struggling, talk to your lender as they would rather come to an agreement that benefits you both.