What If I Miss a Payment on My Personal Loan? What to Do Next

Let's say you've been approved for a personal loan through a local lender of your choice. You agreed with the terms, rate and loan amount, and you're thrilled to have some available funds to finance whatever it is you need or want. You take care of those pesky medical bills, you consolidate your debt, or maybe you even head off for an exotic trip.

Now it's time to start paying back the loan.

You knew this would be the case; you knew you were responsible for complying with the terms. The only problem is life has thrown a curve ball, and you're finding it more difficult than you thought it would be to make on-time payments.

This is hardly an uncommon scenario.

Financial advisers and experts caution prospective borrowers to ensure they will be able and willing to make monthly loan payments by the due dates. Of course, qualifying for the personal loan and determining that you can indeed make the payments on time doesn't guarantee that this will actually happen. 

So...

1. What If You Miss a Personal Loan Payment?

- You Will Likely Get Charged a Late Fee

If you fail to make your payment by the due date, the financial institution will tack on a late fee to the outstanding amount. The late fee penalty will vary based on the lender, but it can be anywhere from $10 to $100, depending if the lender has a flat rate charge or a late penalty equal to a certain percentage of your borrowed amount.

Each missed payment will incur a late fee, so it's easy to see how the costs could add up quickly. Some lenders will allow for a few days' grace period; however, it's prudent to not get behind. If you pay your payment in full within 30 days, your credit will likely not be affected, but if you go past the 30 days, there's no guarantee your account won't be sent to collections and be marked as a delinquency on your credit report. 

- Your Credit Score Might Be Impacted

Missing one payment won't destroy your credit and make it impossible to finance anything in the future, but a missed payment will likely knock your score down if more than 30 days late. And, if you miss multiple payments, the consequences will be even more dire and your credit score could plummet. Each loan payment is marked on your credit report, so if you have multiple missed payments, future lenders may not want to work with you and your score will likely severely suffer. 

- Collection Agencies May Get Involved

A single missed payment typically won't result in relentless calls from bill collectors or an official collection case. Instead, you'll get a few friendly reminders from the lender that your payment due date came and went. But once you've missed two or more payments, your account will be sent to collections and the agencies will begin hounding you for the money you owe. This action further damages credit and is more difficult to rectify. 

- The Lender Could File a Lawsuit

If you ignore phone calls or emails from the lender and fail to respond to collection agencies, your lender could take legal action. In some cases, missed payments could lead to lawsuits that will demand wage garnishment until your past-due amount is paid in full. You can avoid this by communicating with your lenders and creating a payback plan with them immediately. 

- You Could Lose Your Collateral

Ordinarily, personal loans are unsecured, which means you aren't required to put up collateral against the loan. Sometimes, though, lenders will approve secured personal loans where the borrower will back the loan with an automobile, property title, or another asset. In these cases, missed payments could lead to repossession or foreclosure.

- Your Loan May Default

Eventually, missed payments will result in loan default. When this happens, your credit score will suffer tremendously, and you almost certainly will have no chance of securing a personal loan (or any type of loan) for at least a few years. Late payments stay on your credit report for up to seven years. 

2. What Should You Do If You Miss a Personal Loan Payment?

Finances are difficult, and it's not uncommon to miss a personal loan payment every now and again. Whether you had a difficult financial month or a personal emergency came up unexpectedly, you can't always account for what life is going to throw at you. But don't worry; there are things you can do immediately to rectify a missed payment and to ensure you can get your finances and loan payments back on track. 

- Contact Your Lender Immediately

The first thing you want to do is contact your lender immediately. Ideally, it would be best to let your lender know about the upcoming late payment before the actual due date. That way, there won't be any surprises when your due date rolls around and no payment has been made. Communicating with your lender will show responsibility and concern so it won't seem as if you're neglecting your loan completely. 

Depending on the lender, there may be a grace period of a few days that will allow you to turn in your payment a few days late without incurring a late payment penalty. 

If you communicate with your lender and make sure to pay your payment in full before 30 days, you likely will not suffer a ding on your credit nor will you have to deal with your loan being sent to collections.

However, if your payment is later than a month and you are going to miss multiple loan payments, the consequences could be disastrous. Contact your lender and explain your situation as well as create a financial plan to pay back your late loan payment(s) as soon as possible. Lenders are willing to work with you and develop plans for repayments if you'll simply communicate with them. But ignoring your loan and trying to hide from it will only bring distress and financial chaos.

- Request a Free Credit Report

You might want to check your credit report to double check your late payment hasn't affected your credit immensely. Your late payment may have been paid back within a few days or a couple weeks, but that doesn't guarantee your credit wasn't affected. Check your credit report to be sure. You can receive three free credit checks a year through AnnualCreditReport.com.

- Prioritize and Create a Payback Plan

Especially if your personal loan is a secured loan, you want to pay the payments in full as soon as possible. You don't want to risk the possessions you offered up as collateral being seized from your creditors. Talk with your lender about possible payback options and prioritize your payments immediately. This may mean having to choose between paying your loan payment or paying other current bills. Consider which bills have higher interest rates, higher risks (such as collateral on the line), etc. and determine which bill should be your highest priority. 

- Cut Back on Expenses

If you can't afford to pay your personal loan payments on time, you likely need to find room in your budget to cut back on expenses and increase your monthly income. There are a variety of simple ways you can save money without having to drastically change your finances. Here are a few money-saving ideas you can begin doing immediately that will allow you to pay back your late payment(s) more easily:

These are just a few ideas out of countless options you could do now to start saving money and cutting back on your expenses. You may have to sacrifice certain purchases, but your financial obligations are likely your main priority. 

- Seek Credit Counseling

You may feel overwhelmed with your current financial situation and like you can't handle it on your own. The good news is you don't have to do it alone, and there are people who specialize in finances that can give you the assistance you need.

It's important to note that credit counseling will likely cost you, so if you only missed a single loan payment and you're on track to be financially caught up within a short amount of time, you most likely don't need to seek out credit counseling. However, if your late payments and other financial obligations are piling up and you're not sure how to move forward, credit counseling may be worth it. 

- Contact a Trustworthy Lender

If you're looking to take out a personal loan from a trusted lender, check out our top-ranked personal loan companies. We give a break down of each lender's consumer star rating, APR, maximum and minimum loan amount, credit score requirement, late payment and other possible fees, etc. 

Here are our top five ranked lenders in the personal loan industry:

See a full list of alternative lending options on our Personal Loan Lending Page.

*Josh McFadden also contributed to this article.