How to Avoid Missing a Loan Payment

When you take out a loan, it is very important that you make loan payments which are paid monthly or over a certain period of time. However, things can happen where you might not make your loan payment on time. For example, you could have an unexpected expense come up or you might have slow sales. If you find yourself missing loan payments it is important that you understand how that will affect you and what your options are.

What Happens When You Miss a Loan Payment?

If you miss a loan payment, you can fix the situation. While you might get hit with a late payment fee, it will not ruin your credit right away. The late payment will not be reported to the credit bureaus until it is at least 30 days past due.

If your payment has passed 30 days, expect to have your credit score to take a hit. Since payment history plays a role in your credit score, even one late payment can lower it and stay on your credit report for up to seven years.

You might be tempted to make a partial payment rather than no payment at all, but a partial payment will not keep your account from being reported or being sent to collections. If you know you will have trouble making a loan payment one month, you should speak to your lender. They might be able to change your due date or change the terms of your loan. This will make your loan payments more manageable.

If you make late loan payments periodically, it can be quite problematic for your credit and future financial endeavors.

Does This Affect Your Credit Score?

A late loan payment can have a negative effect on your credit scores if it’s more than 30 days old. When it is difficult to say exactly how many points your score will go down, your payment history holds the highest weight in determining your score so you can expect a drastic decrease.

A late payment can make it hard for you to get approved for a loan, lease, or line of credit. Vendors might view you as a risky borrower and offer higher interest rates and less favorable terms than you’d like. A late loan payment might interfere with your business credit score and make it a challenge to start or grow your organization.

A late SBA loan payment can hurt your personal credit score and your business credit score. You may be less likely to be approved for a personal loan, mortgage, car loan, or other financial products. If they do approve your application, you can expect a higher interest rate and less attractive terms than you would receive if you made all of your payments on time and have a track record of being responsible.

How to Avoid Missing a Loan Payment

There are some things you can do to keep up with your loan payment and avoid issues in the future.

  • Understand your loan payments and terms: Make sure that you understand what the terms and loan payments are. If you feel like you will not be able to repay them, find another option instead.
  • Reduce your expenses: Take a look at your expenses and cut back on unnecessary spending if possible. Determine where you are overspending and make it a plan to cut back on them.
  • Seek credit counseling: If you make multiple late payments, seek a credit counselor that can help you with your financial situation.
  • Be honest: If you are struggling financially, let your lender know as soon as possible and let them know what you are experiencing.