When you default on a personal loan, it means you have not upheld your promise to repay the personal loan, and the lender may take action to collect what is due. The action will vary depending on the loan agreement and the loan lender. In some instances, when missing the payment due date on your loan, you may first incur a late fee. While some lenders offer grace periods, (an extended amount of time to make a payment without any fees), you could still be charged a fee for making a payment later than when your monthly bill is due.
Defaulting on a Personal Loan
Defaulting on a personal loan means you have not paid your obligation in accordance with your loan agreement. With a Best Egg personal loan, there is a 3-day grace period on the loan payment, but default happens immediately after your payment due date is missed. If payment is received after the 3-day grace period, a late fee will be assessed.
For example, if your payment due date is August 1stand you don’t make a payment until August 4th, on August 2nd, you will be considered late, but will still be able to make a payment without late fees until August 4th
Potential consequences of defaulting on loans
There are negative consequences for defaulting on your unsecured personal loan and impacts on your credit score. Late and missing payments may result in negative marks that can stay on your credit report for up to 10 years. These marks, even if there’s just one, may severely hurt your credit score and they may even make it difficult for you to get approved for a loan or line of credit in the future.
How to avoid defaulting on a loan
The best way to avoid defaulting on an unsecured personal loan is to make your monthly loan payments on time. If you find yourself in a tough financial situation –whether you’ve lost your job or you’re dealing with other financial hardship, there may be options available to you. Communicate your financial situation with your loan servicer –they may have options available to you if you feel you won’t be able to make your payments on time. Life can be unpredictable at times and so can your financial situations. Defaulting on an unsecured personal loan can happen for quite a few reasons, whether it’s due to financial emergencies or even just forgetting your monthly due date. A great way to avoid defaulting on your loan is to write your due date down –post it on your fridge, at your desk or set a due-date reminder in your phone.