Personal Loans and Grace Periods: Making Your Payments on Time

Life throws you a curveball, and you need some extra cash. Whether you’re in need to fund your next home improvement project, major purchase, or have a family emergency, getting a personal loan in Canada can be your saving grace.

Lucky for you, personal loans are easy to obtain and usually have great rates. That doesn’t mean personal loans don’t come with complications, though. For instance, what happens if you can’t make your monthly payment on time? Will there be negative consequences if you constantly pay back your loan in the grace period? We’re here to help!

The experts at LendingArch are here to guide you through personal loans and grace periods, so let’s jump right in.

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Personal Loans 101

Taking out a personal loan can be both exciting and scary. While it is nice to have financial relief, the impending monthly payments can leave you feeling stressed, especially if you weren’t planning on an extra monthly payment.

But rest easy, we’re here to give you the low-down on personal loans and how they work.

What is a Personal Loan?

Also known as unsecured debt, a personal loan isn’t backed by collateral (home or car) and is calculated by your credit score and credit history, which means the interest rate will vary from person to person.

Most personal loans are paid back within 2 to 5 years so it’s important to keep this in mind when you’re deciding on how much your personal loan should be.

Why Should You Get a Personal Loan?

Typically, you’ll be able to get a better rate on personal loans compared to credit cards. Getting this type of loan can even help improve your credit score (they are viewed more favorably in the credit review process). How so?

These types of loans are calculated as a fixed-term loan while a credit card is perceived as a revolving line of credit.

Another benefit to getting a personal loan is that everything is fixed. You’ll have a fixed monthly payment, a fixed interest rate, and a fixed term. Other borrowing types could have variable costs which increase overtime, ultimately making it harder to build your household budget, and in some cases, making you pay more than necessary.

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Terms and Conditions of Personal Loans

Of course, each loan and lender will have different terms and conditions, and we recommend that you read all the terms and conditions, and fine print before signing off on any loan.

One of the most important terms to pay attention to is the payment due date and grace period. Knowing this will allow you to plan for timely payments that won’t have negative consequences.

The Truth about Grace Periods: Why They Matter

Grace periods will allow you to avoid unnecessary interest fees and late charges. They also are a great time for you to catch up (quickly) on the off chance you’re unable to come up with your monthly payment in time.

Plus, grace periods can also give you a bit more time to help pay off those bigger personal loans as each grace period length adds up over time.

What is a Grace Period?

Defined as the amount of time you can make a late payment after the due date without suffering a penalty, grace periods allow you to be late while not getting a late fee, defaulting, or even cancelling a loan.

A grace period starts at the payment due date and ends within a given time frame set by the lender.

For example, if your due date is March 24, with a 10 day grace period. Your payment would need to be received by April 3.

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What is the Average Length of a Grace Period?

Of course, the answer to this is dependant upon a variety of factors. Typically, most grace periods are about 15 days. For example, if your payment due date if the the first of the month, you’ll have until the fifteenth to pay your bill without penalty.

It is important to ask your lender about this as some loans won’t offer a grace period at all while others could offer a length of up to a month.

Will Paying in My Grace Period Affect My Credit Score?

No, lenders shouldn’t report your payment as delinquent or charge you a late fee if they receive your payment within the grace period. This also means your credit report and score should have no negative repercussions.

This is just a general rule. Each lender has their own policy, rules, and regulations.

The only time you would have any negative consequences is when you miss a full payment cycle, which is typically 30 days. This late payment will be reported on credit reports.

What Happens if My Payment is Late?

Penalties will vary, and all details surrounding a lender’s late payment policies will be provided to you during the lending process. Some late payment penalties include a late fee, increase in interest, or default.

Some lenders will even report your late payment(s) to credit reporting agencies resulting in a hit to your credit score. In extreme cases, the lender can put your loan into default or even cancel it.

Long story short, one month of partial or late payments could affect you for the rest of the loan term. Doing your very best to pay off everything in full by the due date will be the best route to take.

What Happens If I Default on My Personal Loan?

By definition, defaulting on a loan means a failure to pay a loan payment. When lenders look at issuing a loan, they will carefully consider the chance of default and assess the risk.

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What are the Consequences of Defaulting?

The first consequence will result on a negative mark on your credit report which will affect your chances of getting a loan in the future. Other consequences can include:

  • Credit penalties: you’ll see a significant drop in your credit score. Additionally, the longer the payment isn’t paid, the harder the hit. For example, the first hit will start after 30 days past due. If your payment is 60 and 90 days past due, you’ll officially default and your credit will drop to the lowest possible score. It’s at this point when your loan will also move to a collections agency.

  • Financial penalties: Late payments will go up every 30 days that the payment is late. Even if you are able to pay off the debt from default, the principal amount of your loan will increase as long as the debt is unpaid. In default, you’ll be responsible for repaying all principal and interest to your loan.

  • Lawsuit: If the loan is of significant value, the lender can choose to take the loan before a judge. From there, the result is in the hands of the court.

  • Wage garnishment: Whether it’s garnishment of wages or liquidation of an asset, a loan is a legally binding contract and if you (the borrower) can’t pay, the court can enforce rules to make sure it gets paid.

Can I Prevent Defaulting on My Loan?

The best option if you think you’ll be late on a payment is to call your lender. This way you can give them a heads-up (which they will appreciate) and you may be able to work with them to make payments more manageable.

Of course, if any chances do occur to your contract, make sure the amendments are in writing.

Understanding the terms and conditions of your personal loan, specifically grace periods along with implications that could arise should you miss a payment or default, will help to make sure you know all the consequences up front so you’ll be prepared if that situation should ever arise.

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What to Do When You Can’t Make Your Loan Payment

It’s important to plan ahead so you can always try to make your payments on time. If for some reason you can’t, here are some suggestions:

A late payment is better than no payment. If you can, try to send in your payment within 30 days of the due date. In many cases, these won’t be reported to credit reporting agencies. This will even help out should you need to consolidate or refinance in the future.

Consolidate with a secured loan. A new loan will give you more time to repay. By adding a secured loan (one that’s tied to collateral), you can get more flexibility. The only issue that could arise with this is whatever assets you put on the loan could be at risk if you default.

Create a payment strategy. Develop a list of all bills and payments and rank them in order of priority. For example, auto loans should be at the top as having your vehicle repossessed would make it difficult for you to get to and from work.

When taking out a car loan, consider using a car finance calculator so that you know what to expect in terms of monthly payments, and make this a part of your personal budget.

Other loans and bills, while affecting your credit, won’t instantly disrupt your life. We also recommend to make your health and safety a top priority as well.

Finding the Best Personal Loans

Are you in need of a personal loan? Will you qualify for one? What will the personal loan amount be for? The team at LendingArch will ask you a few questions about your personal financial history then match you up with the best lenders who will meet your needs.

Plus, we’ll even show you personalized rates so you can make an informed decision. Are you ready? Get started today and fill out our personal loans form .


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