Stopping payments for any loan can have a range of negative consequences. First, you would start to accrue late fees and charges. Then after a certain amount of time your loan will go into default. This means you failed to uphold your end of the loan agreement, and your loan will be sent to a collection agency. This can negatively impact your credit score and borrowing options for years to come.
It’s never a good idea to miss loan payments or fail to pay altogether. This is why it’s always important to be 100% you can afford the payments before taking out any type of loan. Failing to pay a loan can lead to a lower credit score, collections, and make it more difficult to get other loans in the future.
But how will missed payments affect a consolidation loan specifically? Well, debt consolidation loans are generally larger than some other personal loan options. This is because they’re used to pay off several smaller loans, which means they need to be big enough to cover these debts. Other than that, it’s the same as missing payment with any other loan. Your loan will go into default.
Defaulting on a loan means that you have officially breached the personal loan agreement or contract. When this happens the lender usually sends your debt to a collection agency. At that point, you owe the agency and not the lender. This also means that your credit report will not show that you have a loan default. This may stay on your report for years to come, on average for seven years.1
If you currently have a loan in collections, you may be able to negotiate with them. By talking to
them and offering to pay off a fraction of the amount, they may consider the entire debt settled. It’s important to keep in touch with them, and at least try to make payments on the debt. You want to avoid additional fees.
Not paying your loans on time is a quick way to make your financial situation much more difficult. Always thoroughly review your loan contract and repayment terms before signing for a loan to avoid situations like this.
References:
How Long Does Information Stay on my Equifax Credit Report | Equifax
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