I’m going to be late with my payment! What should I do?
By Kate Vaillancourt, Certified Credit Union Financial Counselor (CCUFC)
What should you do if you can’t make a payment on a loan? I know I sound like Mom, but call your lender. Just do it. Call them as soon as you know there is going to be a problem. I know it’s a difficult conversation to have, but talking to them will allow them to explain their next course of action and answer any questions you may have. Every lender handles the news differently, but you won’t know what will happen unless you call. Federal and state laws, lender policies, the type of loan, and the wording of your loan documents will determine the financial institution’s actions. Some lenders offer extensions or are willing to modify the original loan agreement. Others are less merciful, but speaking with your lender gives you a better chance at resolution than completely avoiding them will. I can’t tell you what any specific lender will do, but I can give you an idea of what can happen when loan payments are late.
Your credit score may go down. If your loan is over 30 days past due, the lender is allowed to report it to the credit bureaus. If they do report it, the lender is obligated to report accurately, so if you are truly late, it is unlikely they can change what is reported unless the lender made a mistake.
There may be late fees. This will depend on your contract, but many loan agreements allow for late fees. Call your lender if you aren’t sure what the fees will be and on what day of delinquency they hit. Also, be sure to include these late fees in your next payment. They are often due immediately. Many loans have a grace period; check your contract or call the lender if you don’t know.
Your interest rate may go up. This is especially true with credit cards. It is often in the contract that the low interest rate you originally had will go up if you are late on a payment.
The loan could be sent to a collections agency. This can result in relentless attempts to collect on the loan. While there are laws to protect you from harassment, they will do everything possible to collect.
The collateral may be repossessed or foreclosed on. State laws vary, so be sure to check what is required of the lender and of you, specific to where you live. Most states have provisions that allow lenders to take possession of the vehicle or other collateral that the loan is for. Foreclosures on your home or other property can also happen.
The lender can demand payment in full. This is often the case once a vehicle has been repossessed or when a lender is about to start the foreclosure process. Once these things are in motion, lenders are wary to stop them unless payment is made in full. Be sure to check your contract and educate yourself on the law in your state.
The lender could file a lawsuit. Whether it be small claims or a civil case, lenders may resort to seeking a judgement against you, which can result in liens on your property or wage garnishments.
I know all of these seem awfully scary or harsh, but they are often the reality when loans become delinquent. The best way to navigate through this situation is to have that very difficult conversation with your lender.
If you’d like more personalized help or would like help with your finances, please reach out to me by sending an email to kvaillancourt@acadiafcu.org or by calling 207-992-1060. Financial counseling services are free to members of Acadia Federal Credit Union.