Missing loan payments can have serious consequences — refinance instead

Refinancing your loan could help reduce your monthly payments. (iStock)

This year has been a financial sucker punch for many Americans. More than 6 million households missed September student loan payments, according to a study by the Mortgage Bankers Association. In addition, 2.82 million renters missed their rent, and 3.37 million homeowners missed, paid late, or paid a reduced amount for their September mortgage payment.

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Unemployment rates have also increased as businesses have had to lay off or dismiss workers to reduce expenses. In April, 8% of individuals receiving unemployment benefits had student loans, and 3% owned homes. Does this situation sound familiar?

If so, you may be able to find a solution like refinancing your loans. Use an online tool like Credible to explore different personal finance options that could help cover expenses.

How refinancing your loan could help

While the pandemic has many drawbacks, some consumers discovered one benefit: record-low refinance rates. Both mortgage and student loan refinance rates are sitting below 3%.

Refinance student loans

If you have federal student loans, consider waiting until December to apply for a loan refinance. Federal student loans currently qualify for suspended loan payments until December 31 as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Borrowers can only refinance into private loans and won’t qualify for benefits offered by federal student loans if they refinance.

Multi-lender marketplace Credible can help you compare private lenders at once to determine if now is the right time to refinance, based on your loan type, loan amount, and more.

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You can get an idea of your new monthly payments with a refinanced loan with an online student loan refinancing calculator.

Refinance your mortgage

Homeowners looking to refinance their loan should do some math and planning to ensure they will be in the property long enough to recoup the cost of refinancing your loan.

Refinancing a loan can help reduce monthly payments and/or reduce the cost of the loan. A lower monthly payment could free up extra cash for other expenses. Additionally, refinancing may allow borrowers to readjust payment terms or remove private mortgage insurance from their loans.

If you’re a homeowner, head over to Credible to compare multiple lenders’ rates in one spot.

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Consequences of missing loan payments

Missing payments can have serious consequences.

Missing student loan payments

Student loans are (generally) not dischargeable in a bankruptcy, so even if you’re able to eliminate your other debts, you will likely still be responsible for student loan debt. Additionally, student loan lenders may garnish your wages if you miss multiple payments.

Missing mortgage payments

While homeowners may discharge their mortgages in bankruptcy, homeowners risk losing their property and facing foreclosure. A history of missed payments or bankruptcy could make it difficult for a borrower to purchase a home for some time.

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Other options to consider

Lenders have strict requirements for loan refinances, particularly now, when more people are interested in lowering their monthly payments. If you don’t qualify for a loan refinance or you’re looking for other options, here are a few alternatives:

  • Debt consolidation loan: A debt consolidation loan will let you combine all your debt into one monthly payment. Typically, these types of loans don’t include mortgage loans or student loans, but it could simplify your monthly budget by combining your other expenses. You may even be able to borrow extra money to help cover living expenses while you catch up. Credible can help you explore debt consolidation loans from several lenders.
  • Balance transfer credit cards: If you’re struggling with credit card debt on top of your student loans or mortgage payment, balance transfer credit cards with low or no interest rates could help you save money each month and pay off your debt faster. Use Credible to review multiple balance transfer card options in just a few minutes.

PROS AND CONS OF BALANCE TRANSFER CREDIT CARDS

Whether you opt to refinance a loan or choose a debt consolidation loan or balance transfer card, lenders want to see healthy credit. You’ll want to provide proof of income, and lenders will also review your credit history.

It’s been a challenging year for many people. If you’re struggling to cover loan payments, there may be options available. Credible can help you review all your options in one place. You may also consider contacting your local government services department for additional help.

Bottom line

Both homeowners and student loan borrowers face serious credit score repercussions for multiple missed payments.

While the physical and financial consequences are likely warning enough, the emotional and mental stress that accompanies unpaid bills can be extreme. If you’re struggling to keep up with your student loan or mortgage payments, refinancing your loan may reduce your payment, so you have an easier time managing your monthly expenses.

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