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As competition among lenders tightens, getting loans even with bad credit is not a problem. It is repaying the loan that is often hard. Some borrowers, despite making credit mistakes in the past, take their financial obligations lightly, failing to consider negative impact of possible consequences. In fact, those are quite serious and, besides being very costly, may pose a threat of inability to secure loans in the future. Below are the top four consequences of failing to keep the payments on your bad credit loan.
Heavy Fees
Lenders fear loan defaults and therefore charge heavy fees for inability to stick to the original loan terms. Such fees are commonly composed of default interest rates that are much higher that regular rates, and late payment charges. While late payment charge is a one-time charge that does not seriously affect the long-term borrowing cost, default percentage rates may haunt you for several months, if not longer. Even being late by few days may cost you hundreds of dollars over the life on your loan. Therefore, it is vital to stick to the original arrangements.
Credit Score Impact
Once you have been late for 30 days or more on your loan or line of credit, most lenders would report it to all major credit bureaus. As you most likely did not have an impeccable record when you took a bad credit loan out, any further decreases in your credit rank may pose a serious threat to your future borrowing ability. A history of being late even once may haunt you for as long as two years.
Collection Action
Once you are over a month late, you may expect collection calls in addition to a couple of courtesy calls from your lender that you most likely may have already received. Collection agencies are usually very persistent and often unpleasant to deal with. In addition to annoying phone calls, you may get several letters in mail, threatening legal action.
Legal Action
If the collection activities do not have any effect, many lenders would continue further in their attempts to collect what is owed. In most cases, you may expect getting papers from your local court, requiring you to attend the court hearing. If you lose, and, most likely, you will, you would not only be required to remit the payment, including all late fees and charges to your lender, but also to cover the court fees. In addition, a public record would appear on your credit report that is often more damaging than a record of late payment, as it may stay on your report for as long as seven years.
All of the above are very taxing, both mentally and financially, so you should do everything to avoid the consequences of being late on your bad credit loan. Even if you feel that you would not be able to make a timely payment, contact your lender immediately and try to make some rearrangements. In most cases, if the lenders see that you have some temporary financial difficulties, they would give you a break and not enforce penalties. In the meantime, you should make every possible effort to pay your loans on time, every time.
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