You could fall into loan delinquency if you have a loan and struggle to pay. Delinquency can be a big problem, although if you take steps to get yourself back on track, you won’t fall further behind. If you want to know more about avoiding or getting out of loan delinquency, here are some valuable tips to help you do just that.
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What is delinquency?
Loan delinquency is when you fall behind with your monthly repayments. You are technically classed as delinquent if you are late with just one payment. Loan and credit repayments will appear on your credit report, so slipping into delinquency can seriously harm your credit rating. Also, you could default if you are frequently delinquent with your loan repayments.
Delinquency to default
If you are continually delinquent with your payments, you could end up in a loan default. Youstill need to repay your loan due to persistent non-payment or late payment. If this happens, you could have to pay the whole amount back at once or have your possessions taken from you. You could even end up in court if you cannot repay the amount. This will have severe consequences for your credit report, and it may take years for you to repair the damage.
Budget for your loan
The first way to avoid loan delinquency is to budget for your loan before taking it out. Make sure that you can afford the monthly repayments even if you are having a tough month financially. If possible, have savings to cope with emergencies so you never get into delinquency. If your budget is accurate, you are much less likely to have delinquency problems.
Pay by Direct Debit
Although many loans require you to pay by Direct Debit, if you have one that does not, then make sure you still pay this way. Paying by Direct Debit will ensure you always remember to pay on time. Make sure you have enough funds in your account at the right time each month, and the payment will be made for you. This will stop you from accidentally paying late and slipping into delinquency.
If you think you will slip into delinquency but it will be a temporary problem, you could ask your lender for a repayment holiday. Many loans come with this facility, allowing you to take a month or two off from payment to straighten out your finances. However, remember that you will still pay interest in these months, and your loan period will be extended.
If your delinquency threatens to end with you in default, seek help from your lender or a financial advisor. The quicker you begin to sort out the problem, the faster you will get out of debt.