Most people in our society have some kind of loan. Whether it is a home loan, car or student loan, and even credit cards, we all seemingly have at least one, if not more. What happens if you are not paying off your loans?
Perhaps you are making regular payments but not paying off your loans, or maybe you are not making payments at all. Doing either of these things can affect your loans, in addition to your overall financial health, in several ways.
Keep reading as we dive into how not paying off your loans affects your loans.
Not Paying Off Your Loans Is Definitely Affecting Your Loans
No matter the type of loan you have taken out, not paying them off affects those loans.
If you cannot make any payments on your loan, you could find yourself in default on the loan after some time. This ultimately means that you are likely to owe more in fees, penalties, and interest charges. In addition, your credit score will definitely see a dip, and it will likely take you a few years to build your credit back up to a place where you can borrow again.
On the other hand, say you are making the minimum regular payments, but not anything more. You won’t be facing default, but how exactly is that affecting your loans? In the case of some loans, like with credit cards, you will ultimately be paying more over time due to the interest rate.
Not paying off your loan and letting interest accumulate can also lengthen the time it will take to pay your loan.
Should I Pay Off Loans Early?
There definitely are benefits to paying off your loans early. One major reason for doing so is that it will ultimately save you some money. Paying off your loans means not having to pay interest for a longer length of time.
Especially with credit cards, paying them off entirely or at least paying more than the minimum each month will cut your interest costs down exponentially.
There are a few trade-offs when it comes to paying off loans early. Tightening your belt each month to pay more than the minimum means you have less money in your pocket for some of the luxuries or fun activities you might enjoy. Sacrificing a little now to achieve the financial stability you seek will be worth it, so don’t get discouraged.
With some loans, paying off the debt early won’t actually save you any money as the costs are already included in your loan. This means you will be paying the same amount whether you pay it off or not. All you will be doing by paying loans of this kind early is freeing up some money that was your monthly payment. Sometimes that is enough for people.
Do your research on your loan to see if it will be beneficial to pay it off early. For specific information regarding your loan, contact your lender.
What If I Cannot Make A Payment On My Loan?
Life is full of surprises, and sometimes the unexpected leaves us short on money for a while. If you find yourself in a position where you just can’t make a payment on your loan, take action sooner instead of later.
If you have time before the next payment is due, you will be able to take action before you build up any late fees or penalties. You can consider refinancing or consolidating your debt as one option or even seeking out a secured loan.
Sometimes you might just be a little bit late, but paying late is still going to be better than not paying at all. Try to make your payments within 30 days of the due date. You might have to pay a late fee, but sometimes these late payments are not reported to the credit bureaus, so you may not even see your credit score dip at all.
It is always a good idea to contact your lender to see if there is a way to work out the payments if you feel you will have trouble with multiple payments. You might be able to negotiate a settlement, change your due date or be able to work out a repayment plan.
With federal student loans, you can look into deferment or an income-based repayment plan. This might just give you the breathing room you need to get back in a financial position where you can make the payments you need to make.
The Bottom Line
Not paying your loan off can affect the length of your loan and the amount you actually ultimately pay.
If you can set aside some extra money towards paying off your loans in full, you will find yourself in a better financial standing down the road.
Consult your lenders to see if paying off your loan is the right route for you.