What happens if you miss a loan repayment?

Missed a loan repayment or struggling to repay a loan? Find out what the consequences could be and what you can do for damage control.

Check how late your loan payment is

When you miss a repayment for your loan, the seriousness of the situation depends on how quickly you solve the issue. Once your lender notices your missed payment, they will reach out to you (if you haven’t already reached out).

It’s best to talk to them and discuss a way forward. Generally, you have 14 days to resolve the matter before incurring penalties.

Late payment vs default

Based on information from the Australian Government, a loan payment is considered late when it’s more than 14 days past the due date. At this point, the lender is allowed to list the missed payment on your credit report without giving you written notice. Once it’s on your credit report, the listing can remain there for two years.

The lender can only list your missed payment as a default under the following circumstances:

• The loan payment is overdue by 60 days.
• You owe $150 or more.
• The lender has sent a written notice to your last written address informing you of the missed payment and requesting settlement.
• The lender follows up with a second written notice 30 days after sending the first written notice, letting you know of their intention to report your missed payment to a credit bureau if you don’t settle the outstanding amount.
• After sending a second notice, another 14 days must elapse before the lender can finally list the default. When you settle the debt, the default listing can remain on your credit report for up to five years, but it will be updated to show that payment was made.

The only way you can escape a default listing under these circumstances is when the lender mistakenly sends the notices to a different physical or email address other than the last known address you provided them. Also, once the second written notice is sent, the lender can’t wait more than three months to list the default.

Consequences of a missed loan repayment

• Late payment fees. The lender may charge a late payment fee to your account once you miss the due date. This is usually a small payment that’s below $50.
• Additional interest. Interest will continue to accrue on the outstanding amount.
• Lower credit score. A late payment or default listing on your credit history can negatively impact your credit score. A default does more damage and can affect your chances of approval on future loan applications.
• Repossession of your goods. The lender can repossess the items purchased by the loan, such as a car or motorcycle, and sell them to recover their money.
• Debt collectors. If the lender transfers your debt to a debt collection agency, a debt collector will contact you, asking for payment.
• Legal action. You may receive a notice about being taken to court over an overdue payment.

What you can do after missing a payment

It’s best to act before the credit provider lists negative information on your credit report. You can:

• Submit a request for hardship assistance
• Secure a repayment arrangement agreement with the lender
• Make every effort to clear the outstanding debt
• Talking to a free financial counsellor also helps

However, once the credit provider makes a negative listing on your credit report, the only way forward is to maintain positive financial behaviour. This will eventually improve your credit score.