What happens if I don’t pay my loan?

Posted May 2022

Young man on his mobile phone with laptop

When considering your first loan, or a new loan, it’s important to know what happens if you miss your repayments when they’re due. 

Read on below to learn more about the downward spiral of arrears, collections activity, defaults and possibly debt collection.  And, most importantly, how to avoid them.

What are arrears?

Being in arrears essentially means you’ve missed or stopped making repayments on a loan according to the agreement you made with the loan provider. 

As a starting point, it’s important that you read and understand all of the loan documents provided to you before agreeing to the terms.  This is especially important for digital documents, where it’s easy to skip to the end and sign.  That new car or those upcoming renovations may be exciting, but this part is essential!

If you’re not sure about any of the information provided, or the conditions of your loan; ask questions.  We’re here to help.

So, what happens when I miss or stop payment on my loan?

Sometimes, life happens! We forget to make a payment or an unexpected expense arises that makes it difficult for us to make our loan repayment.

If repayments are overdue and your loan goes into arrears, overdue interest is added to your loan and your loan will continue to increase each day until your arrears are paid.

It sounds complicated, but, the amount you need to pay to get back on track is more than just making the payment you missed.  It’s the payment you missed PLUS the overdue interest. So, the faster you can get back on track, the better. Until your arrears are cleared, your loan will continue to incur overdue interest.

If payments continue to be unpaid on the loan, the loan will progress through the collection activity cycle and may result in a default being loaded on your credit file.

A default can be loaded on a Unity loan when:

  • a repayment hasn’t been made in 30 days
  • the repayment value is $125 or more, and
  • we have made attempts to contact you and resolve the arrears

Will a default affect my future credit?

Quite simply, yes. 

If a default is loaded on your credit file, it can affect employment opportunities, applying for a rental property or utility services, or obtaining a loan in the future.

If you have taken a loan with Unity and you are late, any secured property you have against the loan may be repossessed or your loan could go to an external debt collection agency. 

So, how can I avoid the downward spiral?

Before applying for a loan, ensure your income is stable and your expenses are manageable. Do you have savings tucked away for a rainy day? Could you bundle your debts as a way of reducing your outgoings? A good way to figure this out is by using our online budgeting tool and loan calculator.

You could also consider Loanminder^ if you take a loan with Unity.  Loanminder is loan protection insurance from Provident to cover some, or all, of your repayments if you're unable to work due to illness, injury, trauma or bankruptcy; leaving you to focus on yourself and your whanau without any added stress.

At Unity, we work closely with our members to ensure they can continually make their repayments on their loan. And, if the unexpected happens and the current arrangement for your loan doesn’t work, we will work with you to get you back on track.

What next, if I still don’t think I can make a payment?

If you think you may be unable to continue making your payments on your loan, get in touch with us right away on 0800 287 688.

We understand that anyone can experience temporary financial problems for a variety of reasons, so, in certain circumstances you may be eligible to apply for Hardship Assistance.

If you still have concerns about your finances, you can ask for free and confidential budgeting and financial capability advice from Moneytalks.

Freephone:  0800 345 123

Email: help@moneytalks.co.nz

SMS: 4029


^Loanminder policies are underwritten by Provident Insurance Corporation Limited. Please refer to the relevant policy documents for full terms, conditions and exclusions. You can download the policy document from here or contact Provident Insurance on 0800 676 864 for a copy or Unity.  

Information on Provident Insurance Corporation Limited’s financial strength rating can be found on their website here

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The article published on this page is not financial advice and should not be relied upon as such. The opinions published in this article is not those of Unity Credit Union.