Personal Loans are typically closed ended loans with a specific first payment date and maturity date. If all payments are made on time, then the term will end as scheduled and everyone is happy. As an attempt to keep making payments on time, many people with Personal Loans opt to have payments debited automatically from their bank accounts on payment due dates. To the borrowers’ benefit, having the payments debited automatically makes it less likely that an account will accrue late fees for non-payment within that due date grace period. However, what happens after a payment is dishonored by the bank but I keep making all future payments. It’s just one little missed payment. How bad can the consequences be, right?
What if I don’t make up the one missed payment but pay all future payments?
When a debit or payment is returned by the bank, most vendors will charge a Non-Sufficient Funds fee. This is in addition to what the bank will charge the owner of the account. So think to yourself two NSF fees. As future regular payments hit the account and clear, that NSF fee will be paid first and late fees will begin to accrue with every payment. The NSF fee and late fees will be paid first from the regular payments and whatever is left will be applied to interest and then principal. I know what you’re thinking, “so, I get charged one NSF fee and one late fee.” To that, I have to answer “brace yourself.” As time goes on, if future payments clear, by the end of the term, that single payment that came back NSF will have caused extra interest and many late fees to accrue with EACH payment.
Imagine if you missed the 10th payment on a 24 month loan schedule. That translates into additional late fees for each of the future 14 payments. At the end of the term, there will also be a principal balance due. Remember, as mentioned above, that fees get paid first and what’s left over is used to pay down the principal. This means the loan will not be paid in full as scheduled. Also, keep in mind that the missed payment may affect your credit score as it may show the account as being constantly one payment behind.
I got it! What if I make up the missed payment but not the NSF or late fees?
Even with an extra full payment made to make up the one missed installment, if you do not also pay the extra NSF Fee and late fees, this will still cause extra interest to accrue by the end of the term. But, the good news is that no more late fees should accrue. Also, the credit report will show that the account is current on payments. But, towards the end of the term, not only will there be a principal balance, there will also be extra interest accrued. The loan will not be paid in full as scheduled.
Alright, bottom line it for me.
The best way to deal with a missed payment is to immediately make up the payment with the NSF fee before a late fee accrues. This will save a significant amount of money towards the end. If that’s not possible, try appealing to the lender’s need to keep a good customer and ask to have some of those fees reduced or waived. This will work particularly if you have a good payment history. After all, you have other choices. If all you did was miss one payment, there will be other lenders who may refinance your loan. Another option is to save up a little bit of cash. As soon as there is enough to make up the missed payment, pay it. At least that will reduce the damage at little, even if few late fees have accrued. However, the longer you let an account stay behind, the more disappointed and surprised you’ll be towards the end of the loan.
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