Here's What Happens if You Stop Making Personal Loan Payments

When you take out a personal loan, you commit to making payments on a set schedule. If you fail to follow through on sending those payments out of your bank account, you could face serious consequences. Specifically, here's what could happen if you stop making payments on your personal loan. 

You may be hit with late fees

Once you are late making a payment, a lender will generally charge you a late fee. The terms of your loan will dictate exactly how much you are charged for failing to pay on time. Late fees are typically around $25 or $30, but you could be charged as much as 5% of the amount you still owe to your lender in some circumstances. 

Your late payment will be reported to the credit bureau

Once about 30 days have passed, your lender is typically going to report the missed payment to the credit reporting agency. This can result in damage to your credit score. In fact, if you previously had very good credit, the report that a payment is 30 days late could send your score tumbling by as many as 110 points. 

Good credit is important for borrowing, as well as for other things like signing up for utility services or finding an apartment. Even insurance companies and landlords check your credit. So, this late payment could affect your financial life for years to come. 

You will eventually go into default status

Lenders will consider your account to be delinquent as soon as you're at least 30 days behind. During this time, you'll likely receive calls from them trying to collect the money. You'll continue to incur fees and penalties for non-payment. 

Your account will be charged off  

If a lender gives up hope of collecting, then it will "charge off" the account. This essentially means it writes the money off of its books and reports that to the credit reporting agencies. The lender will usually send your account to collections and a collection agency will then begin efforts to try to recover money from you. 

You could face legal action

It is not super common, but in some cases, lenders will take legal action against you if you have defaulted on a loan. A lender may file a lawsuit against you, and the court could enter a judgment against you. This would be placed on your credit report and would damage your credit score for years to come.

When you get a judgment against you, you could also find yourself facing other collections efforts, such as a lien being placed on your house or your wages being garnished. This could leave you unable to sell your property without taking care of the debt or having money taken out of your bank account. 

Try to keep making payments -- or work something out with your lender

The consequences of default are serious. You want to try to avoid them whenever possible. So, if you have taken out a personal loan, try to cut other items in your budget so you can keep paying it. 

If you run into trouble, reach out to your lender as soon as possible to find out what options you have. Your lender may be willing to work with you to help you avoid falling into default so you can avoid these dire consequences.