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What Happens If You Don’t Make Your Loan Payments?


Not making your loan payments can lead to very negative outcomes. When you take out a loan, you should be confident you can make your monthly payments or else you risk running into less than ideal financial complications. So, what happens if you don’t make your loan payments? Keep reading to find out.

What are the penalties?

The penalties for not making loan payments will vary greatly by loan type and the lender’s process, but missing loan payments can lead to:

  • Owing more money in fees
  • Interest charges building
  • A negative credit score mark that can stick around for seven years
  • Having to appear in court
  • If the loan is secured, you may need to sell the collateral in order to pay back what you owe or the property could be seized by the lender

What should you do if you can’t make a loan payment?

It’s understandable if knowing that you’re about to miss a loan payment makes you want to crawl into bed and pull the covers over your head. However, the best way to deal with missed loan payments is head on. If you realize you won’t be able to make a loan payment on-time, you should still aim to make the payment even if it is late. If you make a late payment within 30 days of the original due date, credit bureaus will not be informed of your late payment, which means your credit score won’t be impacted. 

Communicating with the lender is also a key step. Be upfront with them about your current situation and see if they’re willing to extend the due date or settle your debt for a lower cost. When you pursue debt settlement, you generally need to make one lump sum payment for the new amount you’ve agreed upon, but you will spend less overall. 

What if I’m juggling multiple loans?

If you can’t make multiple loan payments at the same time, prioritize paying secured loans first so you don’t risk losing assets. 

If you’re struggling to repay a federal student loan, there are resources available to potentially help you. Federal student loans come with protections that can step in and help if you’re struggling financially, such as:

  • Deferment allows you to temporarily stop making loan payments until you regain financial stability after a period of unemployment or financial hardship. 
  • Income-based repayment can help those that don’t qualify for deferment by potentially lowering their monthly payments through income-driven repayment programs 

How to budget for monthly loan payments

To help you stay on track and avoid missing payments, let’s look at how you can incorporate your loan payments into your monthly budget. We’re going to dive into how to create a budget and it’s key to remember to include loan payments as a fixed part of your budget. 

Step 1. Gather the Right Info 

The first step towards building out a foolproof budget that can help you pay back all of your loans on time is to gather any pertinent info that can help you understand your financial health better. 

Download anything that will have information about where your money is going each month. 

This includes:

  • Most recent checking account statement 
  • Most recent credit card statement
  • Savings account statement
  • Retirement account statement. 
  • Loan statements (mortgage, car loan, car lease, school loans, personal loans)
  • All insurance statements (life, health, car, house, renters insurance, business insurance)
  • A copy of your most recent pay stub

Step 2. Track Your Spending

If someone were to ask you how much you spend on groceries each month, would you be able to tell them? What about your gas bill? Clothing? Eating out?

If you find yourself guessing or drawing a blank, you’re not alone. A recent survey from found that only 35% of people knew how much money they spent in the previous month. That means 65% of people didn’t know. Oops.

If you don’t know how much you’re spending, chances are you’re not saving enough to truly make investments in your future. 

Before we jump into creating a plan for our money (aka — a budget), we need to identify where your money is currently going. That way, you can see how much money you have left over every month to put towards your financial goals and can identify what potential expenses and bad spending habits you can cut. 

By either looking at past bank statements or noting each purchase made as you make it, keep track of a month’s worth of spending so you can take a closer look at the big spending picture. 

Step 3. Identify Spending Categories

When creating a budget to follow moving forward, you’ll need to focus on spending categories, not individual purchases. Take a look at your typical monthly expenses and begin to group them into spending categories. 

Here are a few popular budgeting categories, but you may need to add in other more niche categories to your budget. You do you.

  • Rent or mortgage
  • Insurance (health, car, house, renters, business, life, etc.) 
  • Utilities (gas, water, electric, sewer/trash)
  • Loan statements (car, student, mortgage, business, etc.)
  • Groceries
  • Eating out
  • Transportation (car payments, metro tickets, gas, insurance, etc.)
  • Travel 
  • Personal care (gym membership, manicures, dry cleaning, etc.)
  • Healthcare payments (doctor visits, prescriptions, copay with insurance) 
  • Shopping
  • Savings
  • Subscription services

To make this easier, find the last month of each of your bank and credit card statements and go line by line writing down what category each purchase is.

Step 4. Build a Basic Budget

To make budgeting way easier (we’re helpful like that), we’ve created a worksheet to help build out your budget in our course Loans 101: Borrowing Money the Right Way. That course covers a few different budgeting methods, but a quick and easy way to build a budget is to take your net income (your gross pay minus deductions and withholdings) into consideration, not your gross income (the amount you’re paid before deductions and withholdings).

Whether you already have loans or are considering taking them out for the first time, Loans 101: Borrowing Money the Right Way can help you get your lending ducks in a row.

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