Personal loans can be beneficial, and many of us have used them to help consolidate our debts and balance our budgets. Unfortunately, unforeseen circumstances can sometimes make loans too expensive to pay back.
For example, losing a job or investment can seriously affect your ability to honor your payment arrangements on a personal loan. And naturally, COVID-19 had a massive impact on many people’s financial situations.
The consequences of defaulting on your personal loan can be pretty serious. Firstly, the debt will incur lots of interest, compounding the problem. Eventually, you could also be handed over to debt collectors, which seriously affects your credit score and can subsequently lead to severe legal implications.
Fortunately, there is hope! And if you’re currently struggling to repay your personal loan, you have a few available options. Let’s take a look at them.
Be Honest From the Start
The most important thing is to be completely honest with the lender the moment you realize you’re in trouble. This may seem obvious, but many people create an even bigger problem by avoiding the issue instead of tackling it head-on.
Contact the lender and explain the situation. Remember, they have contingency plans for situations like yours, and they can offer you a few solutions, such as:
- Payment deferral: The lender agrees to defer the interest payments for an agreed-upon period of time, thereby lowering the monthly repayments, which can help you catch up. Lenders typically add these deferrals to the end of your loan term.
- Payment restructuring: The lender agrees to change the loan structure. In most cases, they will increase the loan term, lowering the monthly repayment amount. Unfortunately, this does mean you will be paying more money in the long run, but that’s often worth it for immediate relief.
- Payment holiday: The lender agrees to give you some time off from repaying the loan. The holiday might be complete, requiring no payment for a few months, or it might be a temporary 50% discount on payment. Again, the lender will recuperate the full amount of the loan, but payment holidays are helpful for those experiencing temporary financial difficulties.
Know Your Rights
You need to understand that even though you are defaulting, you still have rights. The lender must act within the Fair Debt Collection Practices Act (FDCPA) guidelines when reacting to defaults or during the debt-collection phase.
This Act protects people in default, affirming that it is illegal for lenders to be abusive or harass clients. It also guides lenders in their approach to defaults, directing them to work with defaulters toward a mutually beneficial solution.
Other Helpful Options
Besides approaching the credit provider and knowing your rights, there are a few other solutions available to you if you cannot afford your personal loan repayments.
- Refinance your debt: Refinancing means you take out another loan to cover the loan you can’t afford. Refinanced loans are usually secured loans meaning their interest and repayment terms are lower.
- Tighten your belt: Most of us can undoubtedly save money in a few areas of our lives. So cut back on some of your financial wants to free up extra cash for your needs.
- Get financial help: You might be in over your head financially in certain situations. But remember that there are options for financial assistance, such as credit counseling and bankruptcy attorneys.
The inability to repay your personal loan debt doesn’t have to mean the end of your financial stability. As you’ve seen, there are many options to help you navigate these challenges. So be honest with your lender, and soon you’ll be breathing a sigh of financial relief.