If you miss a credit card, auto loan or mortgage payment, you could suffer a variety of consequences. In a best case scenario, your lender may forgive the late payment if you are good customer and make arrangements to pay quickly. However, you could also pay a penalty rate, pay a higher interest rate or even have your possessions taken away for missing a payment.
What Type of Loan Is It?
If you miss a payment on an unsecured loan, you could be sued to compel payment. Your lender could also get a judgment to seize your bank account or garnish your wages until the past due balance is paid. While these are among the last resorts your lender will use, they are valid ways a lender could collect on an unsecured debt.
In most cases, you will be forced to pay additional interest or a penalty in addition to the regular payment. Your credit score may also go down depending on how long you let the payment go unpaid.
Should you miss a payment on a secured loan, the lender may take your collateral. This means that you could lose your home, car or another valuable asset that the lender will typically liquidate and use to pay off the balance.
You May Be Forced to Declare Bankruptcy
When a lender decides to sue or foreclose on your home, your options to fend off such actions are limited. One option may be to declare bankruptcy. During a bankruptcy case, a lender is unable to contact you directly about the debt or take any further legal action against you.
While this may seem like a good thing, there are many consequences of filing for bankruptcy. First, you could see your credit score drop by 100 points or more. Second, lenders may be wary of extending unsecured lines of credit over the next 12-18 months. You also won’t be able to get a mortgage for at least two years.
Finally, you may be ineligible to file for bankruptcy again for several years. This means that if you get into financial trouble in the future, you may have little recourse but to deal with bill collectors and other stresses of being in debt.
Those With Poor Credit Pay More for Everything
Those who have poor credit are often charged higher interest rates on loans or may be limited in the types of loans that they can get. The difference between paying 5 percent interest on a home loan and 8 percent interest could be thousands or tens of thousands of dollars over the life of the loan.
You could pay thousands of dollars more on a car loan if you have poor credit, and some with bad credit may be forced to use payday lenders just to meet their basic obligations. Poor credit could also make it harder to get a job that you could use to pay your bills and start to repair your credit. In fact, you could also face difficulties trying to find a decent apartment or decent rates on insurance if you have less than stellar credit.
Missing a debt payment may not seem like a big deal at the time the payment is missed. You may believe that you can make the payment later and your problem is solved. While that may be true in some cases, you could do long-lasting damage to your credit if you miss to many payments, which could hurt your financially and in other ways in the long-term.