When you get a personal loan, you need to repay the loan amount in monthly installments and it is better to do it before the last due date mentioned in the agreement.
If the monthly payment is overdue for at least 60 days, there will likely be a drop in your credit score and lenders may report the missing payment at the credit bureau. If you cannot pay within 3 to 6 months after the due date, your account status will be changed to default.
After 6 months, the lender will "charge off" your account and sell the debt to the collection agency. If the collection agency files a lawsuit, the court may put your house as a mortgage or may withhold the money from your paycheck to pay off the debt.
Missing the scheduled payment date can cause you a reduced score on your credit report. The credit score calculation depends on the following factors:
- 35% of the score depends on the previous record of loan repayment. It depends on if you have ever missed the due date, been penalized for late payment, and so on.
- 30% of the score is calculated based on how much you have to pay for loans or credit card bills.
- 15% depends on how long you took for repaying the loan previously and kept your loan account active because the longer it is the better.
- 10% of the score remains on the multiple types of loan accounts you have opened in the past and made successful repayment.
- The remaining 10% gives the assurance that you are not a risky borrower because you have no recent records of being a defaulter.
Therefore, you should always check on the costs and flexibility of repayment terms and conditions to avoid certain inconveniences. However, if you get hit by the odds that you cannot pay off a personal loan then you must contact your lender first and discuss the matter before it becomes worse.