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Delinquent Loan: What Is It & How Does It Work?

What Is a Delinquent Loan?
Susan Guillory
Susan GuilloryUpdated March 6, 2023
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If you fail to make a payment on a loan, or if your payment is late by even just one day, the loan is considered delinquent. This can result in some unexpected consequences for borrowers.Read on to learn the answers to such questions as:
  • What does delinquent loan mean?
  • What happens when a loan becomes delinquent?
  • What’s the best way to get out of a delinquent loan? 

Delinquent Loan Meaning

By definition, a delinquent loan is a loan that has one or more late or missed payments. A payment that’s even one day late is considered delinquent.

When Is a Loan Considered Delinquent? 

What is a delinquent loan? Technically, a loan becomes delinquent if the payment on it is just one day late. That is the delinquent loan meaning. Even if you simply forgot to pay it, the loan is still considered delinquent. 

How Do Delinquent Loans Impact Your Credit Score?

Generally, lenders report a missed loan payment to the credit bureaus when the payment is 30 days late. It will then appear on your credit report, and your credit score may drop as a result.For each 30 days your loan is delinquent, your credit score will continue to drop. Late payments can stay on your credit report for up to seven years.A bad credit score may cause you problems in the future. If you want to open a credit card or take out another loan, you may have difficulty. That’s because one of the requirements for a personal loan is having a certain minimum credit score. If you’ve damaged your credit by making late payments, a delinquent loan could affect you for years.

What Is the Cost of Making a Late Payment on a Delinquent Loan?

In addition to negatively impacting your credit score, a late payment on a delinquent loan will cost you money. Many lenders typically give a grace period of several days or more. As long as you make your payment during that time frame, you typically don’t incur fees. After that, however, you’ll usually be charged a late fee. This could be a flat fee or a percentage of the balance you owe. Lenders have different policies regarding late fees, so check your loan agreement for the details.If you’re delinquent on a credit card, there may be a penalty APR in addition to late fees. In that case you could be charged a higher interest rate.

Getting Out of a Delinquent Loan

If you have a delinquent loan that you’re struggling to pay, you need to be proactive. Otherwise, the loan could go into default, which is even more serious. Here’s what to do. 

Contact Your Lender

It’s a good idea to contact your lender as soon as you miss a payment. Because you’re making a good faith effort to try to remedy the situation, they may be willing to work with you. Explain your financial situation and see if they will take it into consideration and modify the loan. For instance, if you’ve been laid off, the lender might agree to push your payment due date back a bit or even put payments on pause for a few weeks or months to help you get back on your feet. This isn’t guaranteed, of course, but you’ll never know unless you ask.

Be Aware of Your Rights

If you have a delinquent loan, you’ll likely receive phone calls from your lender asking about payment. If the delinquency goes on long enough, the lender may sell the debt to a debt collector, who might be even more aggressive about trying to get the money you owe.It’s important to understand your rights. According to the Fair Debt Collection Practices Act (FDCPA), debt collectors can’t threaten to arrest you or have you jailed if you don’t pay the debt. Nor can they lie to you, harass you, or spread false claims about you.Protect yourself by knowing your rights under the FDCPA. In addition, keep tabs on exactly how much you owe, and review your credit report to see how the delinquency is reported to make sure it’s accurate. 

Contact a Professional Debt Advisor 

If the delinquent loan has become overwhelming, consider getting help from a certified debt advisor or credit counselor. These experts can help you set a budget, reduce your expenses, create a payment plan, and perhaps suggest consolidating your debt with a debt consolidation loan to make it easier to pay off.As you work to get out from debt, you may be able to slowly rebuild your credit and improve your credit score.

Consider Refinancing Your Personal Loan

If the interest you’re paying on your delinquent loan is high, or your monthly payments are unaffordable, consider refinancing the loan. To do this, you can apply for a personal loan with more favorable terms. What is the function of a personal loan? One of the things you can use it for is to help manage existing debt. By refinancing your delinquent loan, you could pay off the current loan and replace it with a new loan, ideally at a lower interest rate. That could give you lower monthly payments, which may be easier to make. Another option is to get a longer period to pay off the loan, which would also lower your monthly payments. Just be aware that the longer the term of the loan is, the more you’ll pay in interest overall.

Avoid a Delinquent Loan

These steps can help you avoid having a delinquent loan in the first place:
  • Stay on top of your finances. Create a budget that allows you to make all your payments, and stick to it.  
  • When taking out a loan, don’t borrow more than you can comfortably afford to repay.
  • To prevent missing payments or forgetting them, set up automatic payments on the loan.

Delinquent Loan vs. Defaulting on a Personal Loan 

You may also have heard of the term defaulting on a personal loan and wondered how it differs from loan delinquency. Defaulting happens when you’ve been delinquent in paying your loan for several months in a row, and it’s more serious. Here are the differences between delinquent loans and defaulting on a loan. 
Delinquent LoanDefaulting on a Loan
A single late payment on a loanA series of late payments on a loan
Consequences:• Late payments more than 30 days past due may be reported to the credit bureaus.• Credit score drops• Lender may charge late feesConsequences:• A loan default can remain on your credit report for seven years.• Negative impact on credit score may be severe.• Debt collectors may pursue you for payment or the lender might sue you.

The Takeaway

A loan is considered delinquent even if you’re just one day past the payment due date. A delinquent loan can negatively impact your credit score, cost you money in late fees, and may be reported to the credit bureaus. A new personal loan could help you consolidate your debt and make it easier to manage. If you’re exploring personal loan options, Lantern can help. By filling out one simple form, you can get offers from multiple lenders at once to find the best rates and terms for your needs.

Frequently Asked Questions

What are delinquent loans?
Can I use a personal loan to pay off a delinquent loan?
Is a delinquent loan bad?
Photo credit: iStock/Kwangmoozaa

About the Author

Susan Guillory

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.
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