Every borrower is required to adhere to payment plans. Falling behind on payments will result in credit score damage and late payment fees. Experts suggest contacting your lender immediately if you anticipate a payment failure due to unemployment.
It is important to bring to your notice that a missed payment is not immediately reported to the CCR. Lenders offer a 30-day buffer period to clear the balance, but late payment fees will be levied, and interest will be accrued.
What consequences do borrowers face when they miss a repayment date?
Here is what happens if you fall behind on the payment:
- Late payment fees are levied
As you miss the payment date, you will be obligated to pay late payment fees. It depends on your lender how much they will charge you.
- Your credit score will go down
If the payment is 30 days past due, your lender will report it to the CCR, which means your credit score will start declining. If you miss payments more frequently, the credit score damage will be worse. Once your credit score falls into the “very poor credit range”, it will make it even more challenging for you to borrow money at lower interest rates down the line.
- You will have to face collection agencies
Lenders will send you reminder notifications to clear the outstanding balance as soon as possible. However, if you still refuse to make payments, your account will go to the collection agencies. Lenders contact collection agencies when your account is in default for three months.
The onus of collecting payments from you is on collection agencies. They will keep sending you emails, letters, and text messages and make phone calls. If you are relentlessly refusing to acknowledge their phone calls and emails, the lender can issue a CCJ against you.
Once a CCJ is issued against you, it will wreak havoc on your credit score.
- Mortgage approval is all but impossible
Defaults will continue to show up on your credit report for six years. It means you will have to face the impact of your compromised credit rating. Even though you later begin to handle debts responsibly, the impact of recorded late and missed payments is ineluctable.
- Most affordable deals will no longer be available
Late payments will call your credibility into question. Lenders will perceive you as an extremely risky borrower. In order to mitigate their risks, they will charge high interest rates. Affordable deals are available for good credit borrowers only.
What should you do if you are facing unemployment?
If you have been laid off and are struggling to keep up with payments, take the following steps:
- Talk to your lender
Inform your lender of your true financial condition. Let them know you have lost your job. This will help you have another repayment plan that suits your current financial condition. Contact your lender before going into default.
- Apply for benefits
Seek unemployment benefits. They will provide an influx of cash. If you come across unexpected expenses, apply for loans for the unemployed in Ireland. Use them only when you are completely confident about your repayment capacity.
- Get mortgage protection
Talk to your mortgage provider as they can offer a payment holiday or allow for a reduced payment to take the edge off your budget. Check if your mortgage has payment protection insurance, which cushions the blow of unemployment to mortgage payments.
- Cut down on your expenses
Do not make the mistake of applying for loans in Ireland for the unemployed every time your budget falls short of cash. Restructure your budget and do not spend on discretionary expenses. This helps ease cash flow.
- Try getting a side gig
Unless you land a new job, you should try doing a part-time job. Various side gigs can help you stay afloat during financial hardship, such as walking dogs, Uber driving, and so forth. Additional income will preclude you from being reliant on loans for the unemployed with bad credit.
To wrap up
If you miss a repayment due to unemployment, you will see a damaging effect on your credit score. This will also levy late payment charges and interest penalties.
If you are not certain about your ability to make payments due to job loss, talk to your lender without further ado to know alternative favourable solutions. You can know about the debt solutions for the unemployed here.
FAQs
- Will lenders always be helping?
Lenders will try their best to restructure your payment plans, but it is not guaranteed that those suggested plans are helpful.
- Can I avoid collection during unemployment?
If you inform your lender of your true financial condition before missing a payment, they will not send your account to collection agencies.
- Can I pause payments during job loss?
Do not do it without keeping your lender posted. It is vital to take their consent before doing that. Otherwise, it will be considered a default.
- Will interest keep accruing during non-payments or reduced payments?
Yes, interest will keep accruing even if payments are paused or reduced, but this will cause the debt to keep accumulating.
- What if you cannot afford repayments at all?
Talk to a debt advisor to know what alternatives you have.
Caleb works as a senior content writer at Loanstopocket for the past 3 years. He is a writing enthusiast and invests a good time in exploring and writing about financial trends. His keenness in exploring a topic to create a research-based piece is simply unmatched. He believes in including a texture of authenticity with real-time examples and facts.
Caleb’s blogs and articles reveal deep-seated knowledge and expertise. His educational qualification forms the base of his excellent command over the industry and Jargon. He is a postgraduate in Finance and is currently involved in exploring the world of the stock market.
