NEW YORK, March 3, 2023 (Newswire.com) - OneMain Financial: Late payments can happen now and again. Sometimes borrowers get so busy they forget a payment is due. Occasionally, borrowers delay payment because they don't have the funds in their bank account to cover it.
While online resources such as loan payment calculators can help people plan and estimate their total payment obligations, late payments can still occur. Here's what to expect when a loan payment is submitted late.
Almost all loans have a late fee that penalizes the borrower when the scheduled payment is not received. Depending on the loan contract, lender, and state laws, this fee amount varies.
Additional interest accumulation
Additional interest charges apply for each day a payment is late. Depending on how long it takes for the borrower to pay the overdue amount, a significant amount of interest could build up.
Remember that a late payment throws off the original loan schedule when interest charges have been structured into the payments. As a result, there will likely be an outstanding balance on the back end of the loan, which will also have to be paid off to cover the extra interest charges.
Interest rate increase
Some loans, such as auto and student loans, have contracts with built-in clauses that allow the lender to increase the interest rate if a payment is missed. Again, this results in more interest charges which means higher payments.
Credit score decline
Perhaps one of the most significant consequences of missing a loan payment due date is the effect it could have on the borrower's credit score, also called a FICO® Score.
A borrower's payment history accounts for 35 percent of the total FICO score. Just one late payment can cause that score to drop significantly.
Some people believe they have a certain number of days before a late payment begins to affect their credit score. Depending on the lender and type of loan, that may be true. Many lenders wait at least 30 days before notifying the three major credit bureaus about the late payment. However, other lenders will immediately report the late payment. Since there's no telling which practice an individual lender uses ahead of time, it's not worth taking the risk.
Reduced ability to qualify for future loans
In addition to experiencing a hit to their credit score, borrowers who make late payments will most likely have difficulty securing new lines of credit or getting approved for future loans. Even if they are approved for a loan, the interest rate they'll be offered will probably not be as favorable as one given to someone with no history of late payments.
The Bottom Line
Borrowers should understand the consequences that may result when loan payments are late or missed. The immediate repercussions will most likely be late fees, accumulation of more interest, and a potential increase in the interest rate. Long-term issues include the impact on the borrower's credit score and the ability to qualify for new loans in the future.
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Original Source: OneMain Financial: The Consequences of Making Late Loan Payments