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What happens if I miss a personal loan repayment?

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.

Did you find this helpful? Why not share this article?

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

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Learn more about personal loans

Is a personal loan a variable or fixed-rate loan?

Depending on the personal loan lender, you may be able to choose between a fixed and a variable interest rate. But, there are a few distinct differences between the two, so it’s important to weigh up the pros and cons before deciding on what’s right for you.

A fixed interest rate loan gets you the convenience of knowing exactly how much you need to repay each fortnight or month. On the other hand, you generally won’t be able to make lump sum or advanced payments to close your personal loan early - or at least not without a penalty.

With a variable interest rate personal loan, you may be able to get a longer loan repayment term, with the option of paying off the loan early. You typically won’t need to pay any additional charges for an early full repayment either. The potential disadvantage with an interest rate that can change is that your repayment is not entirely predictable, as it can fluctuate with the market. However, you’ll likely have more options as more lenders offer a variable interest rate personal loan.

Can I merge my personal loan with my home loan?

Yes, you can refinance your home loan and, in the process, merge or consolidate your personal loan and home loan. By doing so, you can lower the number of debts you have, and you may also reduce the total interest you have to pay.

However, you should consult a financial advisor or a mortgage broker to confirm that you are decreasing your total outstanding debt, including interest payments. The repayment term for a home loan can be much longer than that for a personal loan, and by merging the two, you could be repaying a higher amount over the full term.

What causes bad credit history?

Bad credit history is caused by filing for bankruptcy, defaulting on your debts, falling behind on your repayments and having loan applications rejected. Lenders are wary of borrowers who demonstrate this sort of behaviour because it suggests they might struggle to repay future loans.

Borrowers with bad credit may find it more difficult to be approved for a loan, or they may get higher interest rates when they do get approved.

Which lenders offer bad credit personal loans?

Several dozen lenders offer bad credit personal loans in Australia. These are generally smaller lenders that aren’t household names.

What is an unsecured bad credit personal loan?

A bad credit personal loan is ‘unsecured’ when the borrower doesn’t offer up an asset, such as a car or jewellery, as collateral or security. Lenders generally charge higher interest rates on unsecured loans than secured loans.

What is a secured bad credit personal loan?

A bad credit personal loan is 'secured' when the borrower offers up an asset, such as a car or jewellery, as collateral or security. If the borrower fails to repay the loan, the lender can then seize the asset to recoup its losses.

How do you get a bad credit personal loan?

You can get a bad credit personal loan by applying directly to a lender, by going through a mortgage broker or by using a comparison website like RateCity.

How much can I borrow with a personal loan?

It’s unusual for a lender to provide a personal loan of above $100,000, although there is no formal limit. As with all lending products, each lender sets its own policies, while each borrower is assessed on a case-by-case basis.

What is a bad credit rating/score?

Credit ratings or credit scores are calculated by credit reporting bodies such as Equifax, Dun & Bradstreet, Experian and the Tasmanian Collection Service. These are separate organisations, so they use different systems.

Equifax gives scores between 0 and 1,200:

  • 833 to 1,200 = Excellent
  • 726 to 823 = Very good
  • 622 to 725 = Good
  • 510 to 621 = Average
  • 509 or less = Below average

Dun & Bradstreet (through the Credit Simple service) gives scores between 0 and 1,000:

  • 800 to 1,000 = High end
  • 700 to 799 = Great
  • 500 to 699 = Average
  • 300 to 499 = Room to improve
  • 299 or less = Low

Experian gives scores between 0 and 999:

  • 961 to 999 = Excellent
  • 881 to 960 = Good
  • 721 to 880 = Fair
  • 561 to 720 = Poor
  • 0 to 560 = Very poor

The Tasmanian Collection Service doesn’t give scores. Instead, it prepares credit reports for credit providers and then lets those providers make their own assessment.

When was comprehensive credit reporting introduced?

Comprehensive credit reporting was introduced to make credit reports fairer and more accurate. Under the previous system, credit providers only saw negative information about potential borrowers. Now, they're able to see both positive and negative information, which means that credit providers can see if a borrower’s negative credit behaviour is consistent or a mere one-off.

Who calculates your credit rating/score?

Credit ratings or credit scores are calculated by credit reporting bodies. The main bodies are Equifax, Dun & Bradstreet, Experian and the Tasmanian Collection Service.

Can I get a personal loan if I receive Centrelink payments?

It is hard, but not impossible, to qualify for a personal loan if you receive Centrelink payments.

Some lenders won’t lend money to people who are on welfare. However, other lenders will simply consider Centrelink payments as another factor to weigh up when they assess a person’s capacity to repay a loan. You should check with any prospective lender about their criteria before making a personal loan application.

Can I get guaranteed approval for a bad credit personal loan?

Few, if any, lenders would be willing to give guaranteed approval for a bad credit personal loan. Borrowers with bad credit histories can have more complicated financial circumstances than other borrowers, so lenders will want time to study your application. 

It’s all about risk. When someone applies for a personal loan, the lender evaluates how likely that borrower would be to repay the money. Lenders are more willing to give personal loans to borrowers with good credit than bad credit because there’s a higher likelihood that the personal loan will be repaid. 

So a borrower with good credit is more likely to have a loan approved and to be approved faster, while a borrower with bad credit is less likely to have a loan approved and, if they are approved, may be approved slower.

What causes bad credit ratings/scores?

Failing to repay loans and bills will damage your credit score. So will falling behind on your repayments. Your credit score will also suffer if you apply for credit too often or have credit applications rejected.