How Bad Is It To Miss a Loan Payment?

Student loans are one of the fastest growing forms of debt in the United States today. With the rising cost of college, many people are having to take on tens of thousands of dollars in debt to pay for school. Although some students land jobs after graduation, there are also some that have issues finding employment where they make enough money to pay for their student loans. Many students are left with loan payments that are too big for them to bear the burden of over the long term. This results in many students missing loan payments or going into default on their loans. Many people do not realize just how detrimental it is to miss loan payments on their debt. There are several things that happen financially when a person misses a loan payment. Not only does the interest continue to grow on the loan, but a person's credit score is also impacted. A lower credit score will result in higher borrowing costs down the road. People with a lot of student loans or other debt should work to make payments on time every month. If they start to get behind, it can be very difficult in getting caught up again. Here are several things that happen when missing a payment on any loan.

Interest

Interest is the penalty that people pay for taking on debt. The higher the interest rate, the more that the interest will be as a percentage of the total payment. We are currently in an environment when interest rates on many forms of debt are at all time lows. However, when using a credit card or other forms of unsecured debt, there is a much higher interest rate to be paid. The financing company that provides the loan must be compensated for the risk that they take on. This risk can be measured in the interest rate that must be paid. When you miss a payment, the interest on the debt starts to build and is eventually added to the principal on the loan. This is why some people are simply never able to pull out of their financial hole from all of the debt that they take on. Whenever a person just pays the minimum payments, they are never paying down the principal on the debt. Interest building up over time is one of the biggest reasons that missing payments should be avoided at all costs.

Credit Score

The credit score is one of the most important metrics that anyone can have with their finances. There are many people with a high credit score, and this makes it much easier to borrow money at a lower rate. Low credit scores mean that it will be more expensive to borrow money in the future. The best way to increase a credit score is to borrow money and pay it off over time. Missing a payment on a loan is one of the worst things that can happen to a credit score. Many people make financial mistakes when they are young that ends up affecting their financial future. For example, many people end up renting longer than they would like because they cannot get qualified to purchase a home. Being responsible and paying off debt is the best way to help your financial future. The credit score should be treated with the importance that it has. Always be sure to pay loan payments on time in order to not hurt the credit score over time.

Credit Repair

There are many credit repair companies in the industry today that can help people that are struggling to make all of their payments. Many people have five or six credit cards that carry a balance. It can be difficult to manage all of the payments on these cards at one time. These credit repair companies can work with people in a way that will help them in both the short term and long term. In the short term, it is important to get all of their payments caught up. However, in the long term it is important to change the behaviors that led to the increase in debt in the first place. Many people make purchases on credit because they want something that day. A good practice is to save up money to buy something if the monthly payments cannot be made. Credit cards are not a bad thing and are a great way to build up credit. Likewise, student loans are the only way that many people can attend college to make a better life for their future. However, if the borrowing costs are not measured, many people end up owing money that they can never pay back.

Final Thoughts

Overall, there are many consequences to missing payments on loans that are taken out. Two of the most common types of debt in the United States today are credit cards and student loans. Credit cards have high interest rates which can build up quickly if they are not paid off. Many people think they can get away with missing just one or two payments on their loans. However, this will impact the credit score of the borrower and will lead to higher costs down the line. Whenever a loan is not paid, the interest on the loan continues to build up. This will make it more difficult to pay off over the long term. There are many credit repair companies that can help borrowers that are in a bad position with their debt. In order to avoid this situation, it is best to just pay off the debt as it is owed on the loan.