What to Do if You Can’t Make a Payment on Your Loan
Australians take out billions of dollars of loans each year. There are all sorts of reasons why you might need a loan – from a small short-term loan to help pay for home repairs or medical costs, to a long term home or car loan. Loans can make a huge difference to people’s lives and can allow them to achieve goals they simply wouldn’t be able to without the extra boost.
Yet finding yourself in the position where you can’t make loan payments can be incredibly challenging and stressful. You may be worrying about what your lender will do if you default on your loan, or how your failure to make loan payments will impact your chance of future borrowing.
If you have bad credit, it’s often really worrying when you can’t make loan payments as you’ll probably be aware of the challenges you can face when trying to borrow money and the added importance of paying it back on time and in full.
Here are some steps to take when you realise that you can’t make loan payments:
1. Don’t ignore the situation
This is the biggest step to overcome. So many people struggling to make loan payments simply bury their heads in the sand. Doing this will only lead to further financial problems and you need to take action.
Whilst it’s tempting to leave payment demands unopened or avoid phone calls, the issue won’t go away and you need to address it. Confront things head-on – getting help from friends and family if you have kept your money issues to yourself. Some people ask for financial help from a close friend or family member who is in a strong financial position and is able to offer them a temporary informal loan to help out short term.
2. Work out if you have time
If you realised you can’t make loan payments before your loan payment is due, you may have a little time to act before you are actually officially late with your payment.
If you do have time, ask yourself whether you can make the payment a little later than planned? If so, do this – it’s better late than never and even better if you can get the payment to your lender within 30 days after the due date. If you know in advance that you can’t make loan payments, you might want to think about consolidating your debts.
3. Consolidate debt
It’s useful to look at the type of loan payment that you’re unable to make. Often you can consolidate debts such as those on your credit card with a personal loan, which is likely to have lower interest rates and will bring down the total that you are required to repay each month.
Work out which are your most expensive loans and which have the highest rates of interest. You need to work on reducing the total cost for these which could mean changing to a different type of loan or extending your loan term so that you have longer to make the loan payments. Do your calculations properly and always remember to include interest fees.
4. Speak to your lender
This might seem like the last thing that you want to do but it’s often really productive. Lenders understand that things crop up and they deal with people who can’t make loan payments on a daily basis. Most lenders will be fairly sympathetic to the issues that you are facing and many loan companies have specific departments who may be able to offer hardship assistance to you.
Be as honest as possible with your lender and tell them as accurately as you can about your situation explaining the key reasons why you can’t make your loan payments. Your lender is likely to offer you a variety of options and should be happy to talk you through each one.
5. Budget budget budget
Now that you’re in a situation where you can’t make loan payments, you need to take control of your finances and make some changes. Figure out exactly how much you have to spend each month and where your money is going. Have a look at if there are any areas where you can cut back and make savings – this can include anything from switching your utility bills to a cheaper supplier to cancelling gym memberships and film subscriptions.
You should prioritise paying back your loan payments over everything except essential spending.
Your lender wants to work with you to ensure that you make your loan payments – in short, they want the money back from you.
A lender is likely to be far more understanding and accommodating to a borrower who can’t make loan payments if they are prepared to strike up a direct conversation in which they clearly state the reasons why they are missing repayments and how long they think they might need to pay back the loan.
It’s up to you to take the first step – don’t wait for lenders to start chasing you with demands via letter or phone calls. These can be overwhelming and intimidating – but they’re part of a process and the lender is required to follow up and chase the money that you have borrowed. Be ahead of the game by speaking directly to your lender and making them aware of the situation that you are in.
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