Home » Paying Back Your Loans

When applying for a payday loans or small personal loans, it's important to always abide by the terms of the loan agreement: your minimum monthly payment is based on the type of loan, the amount you owe, the length of your repayment plan and your interest rate.

How to make payments, set up a loan repayment schedule, and get help to pay back your payday or personal loans? Read these topics before signing a loan contact.


Let's face facts - if you don't pay back your loan, there are many ways a lender can make your financial life miserable. Take action if you cannot make your loan payments in order to minimize damage and preserve your credit scores.

Attention! If you miss a loan payment, you will get a brief letter from the lender expressing their disappointment and hoping you get back on track before your loan goes into default.

what happens if you don't pay back the loanHow Can a Lender Do If You Default on a Loan?

When you default on a loan, there are many options a lender can do that are bad for you, in that they can create significant damage to your credit score and your finances for many years to come. Here are the biggest ones:

  • They can send your account to debt collectors – If you default on a loan, the lender may wait a month, but your account will end up in collections, which is in no way a pleasant process. They will demand that you repay the loan immediately and in full. Collections agents tend to be very demanding and very aggressive, and they call and send letters incessantly.
  • They will report the default to the credit reporting agencies – They often do this even before the account goes into default. When that happens, your credit score will drop, and it can take many years to undo that damage.
  • They can sue you – Most loan documents include the lender reserving the right to take you to court to recover any money you owe them. This will multiply the effect on your credit score.
  • They can also create a tax obligation on your part – If you default on a loan, in some cases, the lender can write off all or a part of the loan and issue you a 1099-C IRS form for that amount, which will count as taxable income, thus increasing your tax bill.

It Can Ruin Your Credit for Years

Important Let's face facts: if you don't pay off a loan, there are many ways a lender can make your financial life uncomfortable one. Your reputation will take a hit, as will your credit score. Interest rates will go up for you considerably in the future, and you may even find bankruptcy the only way out. It could take a decade or more to negate the effects of not paying back a loan.


Why paying back a loan early can be a good option for you? When you have extra money available, paying off debt is often a good choice. Take into consideration everything, since some loans may include a pre-payment penalty.

Living with debt is one of the most stressful experiences anyone can have. Though it can sometimes feel like a long slog, paying off all of your debts and loans will create a brighter financial future. Of course, in many, if not most, cases, it's possible to pay off a loan early. If it is possible, you should do so, as it will not only make you feel better as each debt is paid off, but it will strengthen your finances.

How to Pay Back a Loan EarlyHow to Pay Back a Loan Early

There are several methods you can use to pay off a loan early. You can make larger monthly payments, or you can make multiple payments every month.

If it is possible, you can pay the balance of the loan in a single lump sum. However, while all of these will work, you should take a close look at the fine print in your loan contract, since some loans may include a pre-payment penalty.

Information While paying off a debt early seems not so challenging, there are also some considerations to be made before you decide to do so. For example, some types of loans come with tax advantages that you may lose when you pay off the loan early. As noted, sometimes the pre-payment penalty, if there is one, may be higher than the interest payments you'll save by paying everything off early.

Check Your Interest Rates

Check the interest rates on your loan and compare them to the rates on the other debts. If you have several credit cards with interest rates much higher than the loan, instead of paying off the loan early by making double payments, it may make more sense to use the extra money to pay down your higher interest debt first.

Paying off a debt as soon as you can is always a great idea, but sometimes there are better ways to get it done. Factor in everything before you decide to pay off a loan early.


Many of the borrowers ask themselves the question of how new loans (and existing debts) affect credit scores since payment history is the number one factor in credit scoring. Before you pay off a loan, consider what it will mean for your credit history.

One thing to keep in mind when you are thinking about your credit history and how to improve your credit score is to learn not to miss out the details. Some people let their credit score drive their financial decision-making, instead of thinking about what's best for them and their finances. Remember that keeping control of your finances drives your credit score and not the other way around.

How paying back a loan affects your credit scoreWhat If You Pay Back A Loan Early?

If you are considering paying back a loan early, consider the effect on your current and future financial situation.

For example, if any other accounts are behind, it may be better for your finances to catch those up before you consider paying off that loan. The same is true if you are carrying a credit card debt. That is an expensive debt and paying this off could have a more beneficial impact on your credit score than paying off a loan early.

The easy answer as to how paying off your loan will affect your credit score is depends on your loan amount and fees. Credit scoring companies prefer credit card balances that are near zero, and they will be more impressed if you pay off accounts that are in collection or that have been charged off. In other words, how paying off a loan will affect your credit score will depend significantly on what else is in your credit portfolio and report.

How to Maximize Your Credit Score

A case could be made that paying off your loan might have less of an effect than keeping the loan off and making your scheduled payments every month. Demonstrating that you can handle the payments and will do more to improve your score than simply eliminating the debt.

Credit scoring models provide the greater compensation to a consumer who makes ongoing, on-time payments for the length of a personal loan. Moreover, they pay closer attention to the first 12-24 months, so it may be better for your credit score to make payments for the life of the loan and pay it off naturally than to pay it off prematurely.


Everyone has a difficult period in one's financial life. Look for the best approach when being unable to make payments on your loan. It is important to understand your next steps and find possible solutions.

One of the most important aspects of your financial life has to do with your character. Face it - it is about your character, meaning the history of paying your bills on time, that gets you many loans in the first place. That doesn’t mean you lack character when you can't pay back a loan.

What to do when you can't pay back the loanFacing Financial Difficulties

Everyone has a difficult period in his financial life, and sometimes it is very difficult to pay back a loan. No one likes it and it is very stressful, but you have to deal with it, or a lot of bad things can happen. These can include:

  • Loan default
  • Sending your loan to collections
  • Reporting the default to a credit agency, both of which can hurt your credit score.
  • They may even take you to court and get a judgment against you, which could hurt in many ways.

As soon as you get that first delinquency notice on your loan, you should take steps to prevent a default.

One possible solution is to lay out your debts in front of you and set some priorities over others. You may also find it possible to pay off one or more of your more expensive debts, thus freeing up money and making it easier to prevent default on your loan.

In short, the first letter is usually just a warning, which means you should notice the first one, set up a hierarchy of payments, and find the money you need.

Be Up-Front with the Lender

Advice The best approach when being unable to make payments on your loan is to contact the lender and find out if there is something you can work out together. The lender just wants their money back; most would rather accept a lower payment for a longer term than receive nothing back at all. They have no desire to ruin your credit forever. And being proactive at solving the problem means you always know what is going on, so there is no fear of the unknown.

Not paying it back at all will have a terrible effect on your credit score and proactively working with the lender will help you and make that lender and others more likely to loan you money in the future.


It is crucial to know how loans are supposed to work before you borrow money for any purpose. By understanding how loans work, you can save a lot of money and make smarter decisions when you know how things are supposed to be.

What Is the Cost of the Loan?

For example, the first thing any borrower should know is that there are certain interest rates and fees applied for any loan. By law, all lenders are required to disclose how much you will have to pay for your loan, so it is worthwhile to pay attention to those disclosures. For many loans, a Loan Amortization Calculator will show you how things work.

Knowing how loans work
Information When you run the numbers through your amortization calculator, you can check it against the numbers the lender gave you in their disclosure, and you can then make an informed decision as to whether you can handle the costs.

Pay Down the Loan Balance

The crucial element of a loan is a requirement that you pay the money back. You make the payments every month for the term of the loan, and you are expected to make the payments to the lender on time and for the full amount.

If you want to save money, you can usually repay the loans early. However, before you decide to do so, run the numbers and make sure doing so makes sense with regard to your finances.

Advice First, find out if there is a pre-payment penalty if you do so, but then make sure there isn't something else you can do with the extra money that will do more for your financial health. For example, if you're carrying thousands of dollars in high-interest credit card debt, it may not make sense to double up payments on a six percent APR loan.


Every borrower needs to make an informed choice when it comes to deciding which loan offer they want to take and which lender they want to deal with. One crucial moment here is knowing how much it will cost to pay back the loan.

The Truth in Lending Act

How much money you need to pay back the loanThanks to the Truth in Lending Act (TILA), all borrowers have a right to know how much it will cost to pay back the loan before they sign a contract.

Under TILA, all lenders are required by law to make written disclosures about all of the terms, rates and fees of the loan before they present a contract to sign.

All such disclosures must include the following:

  • Annual Percentage Rate (APR) – this is the cost of credit as expressed as a percentage of the principal amount annually.
  • Total Finance Charges – a total amount of interest and fees you will pay over the life of the loan, assuming you make every payment on time.
  • Amount financed – this is the amount you are borrowing.
  • Total of Payments – this is the sum of all payments you will make over the life of the loan, assuming all payments are on time.

Other Disclosable Information

Important! Necessary TILA disclosures include a number of other essential terms of the loan, including the amount you are expected to pay every month, the number of payments, late fees, whether you can pay back the loan early, and other terms that may be specific to you, that you and the lender worked out beforehand.

In many cases, these disclosures are made in advance, but they are often provided as a part of the loan contract. In any case, an applicant should review everything in detail, to avoid problems and surprises later on. If your lender doesn’t provide you with this information in advance, the best idea would be to find another lender.

Financial Literacy Incentives
Your financial well-being is your own responsibility. We encourage you to use any available occasion to improve your financial literacy. This will allow you to make better decisions concerning your money and personal finance. The content provided on our site shouldn’t be considered as financial advice. We’re not bearing any responsibility in relation to decisions based on them.