What To Do if You Miss a Loan Payment

Missing a single payment on a personal loan isn’t the end of the world, but there will be consequences. The severity of those will be determined by what you do next. A missed payment constitutes a breach of contract that could lead to default on the loan and cause long-term damage to your credit score. It will also affect your chances of future credit eligibility.

What you just read is a paraphrased version of the “missed payment” clause in most loan agreements. Lenders want to get paid, so they compose ominous language that makes it seem like you’ll go to debtor’s prison if you don’t make your payments. That’s obviously not going to happen in modern times. Missed payments happen all the time.

Step #1: Contact your lender

For best results, this should happen before you miss a payment. Most lenders will work with you if you’re facing a cash crunch and can’t afford your monthly installment. The likelihood of that happening decreases somewhat if you call after the fact, but it’s in their best interest to get you back on track. Call your lender and explain the situation.

Depending on how much time you have left on the loan agreement, the lender may be willing to refinance the remaining balance and even lower your monthly payments. Deferment is another option. Some loan agreements allow for one payment to be deferred until the end of the loan without any penalty to the borrower. Ask about that when you call.

Step #2: Inquire about credit reporting

One of the benefits of unsecured personal loans is that the lender reports your payment history to the credit bureaus. When payments are made on time, your credit score will gradually increase. When you miss a payment, it has the opposite effect. Ask your lenders about their reporting schedule and see if you can make the missed payment before sending their report.

Borrowers often have grace periods before a payment is reported as late or missed. These should be stated in the terms and conditions of your loan agreement, but a simple phone call to the lender could provide you with a faster answer if you don’t feel like digging through your files. Grace periods are put in place to help you avoid bad credit reports.

Step #3: Consider debt consolidation

Borrowers miss loan payments because they either forget to make them or don’t have the money to cover them. The former can be remedied by putting your payments on autopay. Debt consolidation is an option if you’re having difficulty making ends meet. That first missed payment might indicate that you need to restructure your debt.

Debt consolidation is taking out a new loan to pay off your old loan and any outstanding credit card balances. The goal is to pay a monthly installment that is less than your combined monthly payments on loans and credit cards. Debt consolidation also decreases the number of payments you make each month to one.

The Bottom Line

Be proactive if you miss a loan payment. The worst thing you can do when you miss a monthly loan payment is do nothing. Be proactive. Contact your lender and ask about refinancing and deferment options. Find out when they do credit bureau reporting and try to get your payment in before then. If you can’t, research debt consolidation options to lower your monthly overhead.

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