What happens if I miss a personal loan repayment?

While it’s not ideal, there may come a time when you miss a repayment for your personal loan despite your best intentions. But what could this mean for your financial health?

First, it’s important to understand how credit providers and reporting bureaus differentiate between the different kinds of missed payments. It’s largely dependent on how long it takes you to make the repayment after the due date.

Most credit providers tend to have a grace period of up to 14 days for customers to make up for their missed payment, after which it may be recorded on their credit report.

According to credit reporting bureau Equifax, a repayment that is made:

• between 14 and 60 days after the due date is a late payment, and;
• more than 60 days after the due date is considered a default. 

Regardless of whether you missed your loan repayment because you couldn’t afford it, or you simply forgot to transfer funds in time, it’s likely there will be some level of consequences that you’ll have to face. Some of these could include the following:

You may have to pay a late fee

Most lenders have a standard missed payment penalty that will be charged to your account when you miss a repayment on your loan. This fee is generally charged for all types of missed payments – even those that are rectified within a day or two.

While the amount that you may be charged for missing a payment differs between lenders, the average late payment fee for personal loan and car loan products on RateCity's database is $22.14. For comparison, the average late payment fee for credit cards on RateCity's database is $20.58. Both averages exclude products with $0 late payment fees. Consider checking with your personal loan provider directly for an accurate figure.

Something to keep in mind is that a missed payment penalty isn’t always a one-off fee. If you fail to make the payment with a specified time frame, you could be hit with additional late fees for as long as it’s remains unpaid.

You may be charged additional interest

When you miss a payment, your account balance doesn’t reduce as scheduled, meaning you will be charged additional interest on the missed payment amount. This increases the total interest payable on your loan.

Your credit score may take a hit

If you neglect to pay your missed repayment for more than 14 days after the due date, you risk having the negative event recorded on your credit file. A late payment – paid between 14 and 60 days after the due date – may be recorded on your credit file even if the amount owing is minor.

According to Equifax, “it is unlikely that one late payment followed by making your repayments on time will significantly impact your credit score”. However, as it may still be recorded on your file, this could impact the outcome of an application for credit in the future. This is because your repayment history plays a part in lenders’ decision-making processes.

Meanwhile, a missed payment that remains unpaid for over 60 days after the due date is recorded on your credit file as a default and will almost certainly have a negative impact on your credit score. Different to a late payment, a default will only be recorded on your report if you miss a payment of more than $150, but can remain on there for five years due to its serious nature.

What should I do if I know I’m going to miss a payment?

If you are experiencing financial strain and can’t afford to meet an upcoming personal loan repayment, consider reaching out to your credit provider as soon as possible. They may be able to offer you financial hardship assistance such as an extension or payment plan.

Getting in touch as early as you can and reaching an agreement with your lender could mean that you avoid having a missed payment recorded on your credit file. Keep in mind that this may depend on the reason your payment is late, as most lenders have certain criteria for financial hardship.

You can also access free financial counselling by contacting the National Debt Helpline.

And if you’ve missed a payment in the past and it’s been recorded on your credit file, consider visiting RateCity’s credit score hub for ideas on how to get your credit score back into shape.

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