If you know you can’t make a payment, you need to take swift action.
A growing number of Americans may find themselves unable to make their personal loan payments due to the financial fallout of the coronavirus pandemic. If you’re one of them, the good news is you do have options — but you need to act quickly.
The pandemic has caused serious financial hardships for many families. Here are some of the techniques you can try if you find you can’t pay your lender.
1. Refinance your debt
One of the best options available to you if your personal loan payments are too high is to change the terms of your loan. Lenders usually won’t let you do that with your existing debt, but you can accomplish it if you can qualify for a refinance loan.
The current low interest rates mean many borrowers can refinance their debt at a lower rate. This would allow you to use the proceeds to repay the debt you’re having trouble with. If your new loan has a lower rate, the monthly payments may be lower and may come within your budget — especially if you also choose a longer repayment timeline.
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If you are a homeowner with equity in your home, another route might be a cash out refinance — which could potentially provide significant savings. Today’s mortgage rates are near record lows and any kind of refinance deal could lower your payments. The downside of tapping your home equity, however, is that it puts your home at risk since it serves as collateral. If you can’t pay the loan you could face foreclosure.
Your ability to qualify for a refinance loan depends on your income and credit history. If you miss any payments on your existing loan, it would reduce your credit score. That’s why it’s critical to take action before this happens.
2. Borrow from friends and family
You won’t always be able to qualify for a refinance loan from a lender. If that’s the case, you may want to see if your loved ones could lend you money on a short-term basis so you’ll have the cash to keep up with your payments.
Of course, this may not be an option as many people’s friends and family are struggling too. You’ll also want to be sure you can pay off the loan at a pace your loved ones are comfortable with so you don’t jeopardize the relationship over money.
If you can sell items you don’t need, work overtime, or pick up a side hustle, then you may be able to bring in some extra cash. That’s money you can use to pay your creditors.
This will require sacrifice, and getting a side hustle may be easier said than done. But a little short-term discomfort may be better than the long-term damage you’ll do to your credit if you default on your personal loan.
Finally, if you’re not able to find the money to pay your loan, you should reach out to your creditor as soon as possible.
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During these troubled economic times, lenders are more willing than ever to work with those who can’t pay. Options may include working out a different repayment schedule, making a lump-sum payment of less than the full amount to settle the debt, or temporarily putting payments into forbearance.
If you’re going to negotiate a deal with your lender, be sure to ask them what they’ll tell the credit bureaus, as settling debt can have an adverse impact on your credit. If you really can’t afford the bills, you may have no option but to do it anyway. But you’ll want to know up front that your credit score may take a hit.
Explore all of these options as soon as you realize you can’t make your personal loan payment. It will give you the best chance of finding a solution that works for you.