What to Do if You Can’t Afford Your Monthly Loan Payment

Let’s be honest, life is unpredictable. One minute you’re healthy and happily employed, and the next you’re coping with an illness and no longer working. When the unexpected happens and you can no longer afford the monthly payments on your installment loan, don’t fret. You can use strategies to improve your situation and ease some of the stress you may be facing.

1. Contact your lender

As soon as you realize you can’t make a monthly payment, reach out to the lender. Explain the situation and find out if there’s anything they can do to help. Fortunately, many lenders offer hardship assistance programs and may allow you to defer your payment or make a partial payment. If you’ve been a responsible borrower or loyal customer, there’s a good chance a lender will be willing to work with you. Keep in mind that such deferment options may extend the term of the loan, and some lenders’ hardship policies could result in more interest accruing on the loan.

2. Reduce your expenses

If you can’t afford your monthly loan payments, it may be time to take a closer look at your other expenses. Consider which expenses you can cut and the changes you can make to spend less. You may need to temporarily cancel your gym membership, stop going to concerts for a while, or cook at home instead of dining out. By reducing expenses, you may be able to find the money to make your loan payment.

3. Increase your income

If you’ve been laid off or don’t earn enough at your full-time job, get creative and think about how you can boost your income. You can pick up a part-time job and work in the evenings or on weekends. You could also start a side hustle or sell unwanted items online. With more money at your disposal, it may be easier to make your loan payments and meet other financial goals.

4. Refinance your loan

When you refinance a loan, you replace the current loan with a new one, ideally with a lower rate or more favorable terms. For example, by extending the life of the loan, you can have lower monthly payments, but keep in mind that by going this route, you will pay more in interest and increase the overall cost of your loan. Before you refinance, shop around to explore various options from different lenders and find the best one for your unique situation.

5. Consider a home equity line of credit or a home equity loan

If you own a home, you may want to consider a home equity line of credit (HELOC) or a home equity loan. Then, you’ll receive the financing that could be as much as 80% of your home’s equity). A HELOC is a revolving line of credit that resembles how a credit card works while a home equity loan offers the borrower a lump sum of money upfront to be paid back in installments. The important thing to remember is that with these financing options, your home is pledged as collateral for the loan, and repayment terms, especially for a HELOC, often involve a variable rate APR

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The Bottom Line

It is distressing when you can’t afford to make a monthly loan payment. Remember, there are ways to address this situation. Contact your lender, lower your expenses, increase your income, refinance your loan, or consider applying for either a HELOC or a home equity loan.

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