Worried about a loan default? A missed payment can damage your credit score for years. Learn proactive steps to protect your financial health and understand your options today.
In an economic climate where the cost of living continues to climb, many South African households are finding it increasingly difficult to keep up with their financial commitments. While we all may enter into loan agreements with the best of intentions, life can be unpredictable. A sudden challenge can make staying on top of monthly payments a struggle, but knowing your options and understanding the consequences can make all the difference to your long-term financial health.
As a leading partner in vehicle finance, WesBank has offered crucial insights into how loan defaults can impact your credit score and what proactive steps you can take to safeguard your financial future.
Your Credit Score: More Than Just a Number
Think of your credit score as your financial reputation. It’s a powerful tool that signals to lenders whether you are a responsible borrower. Consistently making your loan payments on time helps build a strong, healthy credit score. However, when payments are missed, the loan can go into ‘default’ status, creating a ripple effect that touches more than just your relationship with your current lender.
“Defaults are reported to credit bureaus, and each missed payment affects your credit score,” explains Lebo Gaoaketse, Head of Marketing and Communication at WesBank. This default status is recorded on your credit report, where it can remain visible to future lenders for years. A lower score can label you as a higher-risk borrower, making it significantly harder to secure credit or favourable loan terms down the line.
The Consequences of a Loan Default
A loan default carries more weight and has a more severe impact on your credit score than a single missed payment. Here’s a breakdown of what happens and why it matters:
- Credit Reporting: Lenders notify credit bureaus when a loan goes into default. This negative mark can affect your credit profile for a period of up to five years.
- Assessing Creditworthiness: Your credit score is one of the primary tools lenders use to evaluate your reliability as a borrower. A high score makes your profile attractive, opening doors to better opportunities.
- Future Borrowing: A low score resulting from a default may lead to a lender approving credit but at a much higher cost, or they may deny your application altogether.
The good news is that recovery is possible. Once the overdue amount on a defaulted loan is settled, the record on your profile will be updated to show as “paid” within seven days, which begins the process of improving your credit status over time.
The Power of Acting Early: A Lifeline from Your Lender
When financial pressure mounts, the worst thing you can do is ignore the problem. The most powerful step you can take is to communicate with your lender before the situation escalates. Acting promptly can protect your credit score and help you avoid additional costs or potential legal consequences.
To assist customers facing these exact challenges, WesBank offers a service called Payment Arrangement. This solution is designed to help individuals resolve their arrears over a reasonable period, preventing a full default and its long-term negative effects.
This service doesn’t alter the original credit agreement; rather, it provides a customised plan to help you catch up on missed payments. While it is subject to WesBank’s approval and requires agreement to its terms, it serves as a critical tool for navigating temporary financial hardship.
Protecting Your Financial Future
Your credit profile is a cornerstone of your financial well-being. “WesBank is committed to helping our customers maintain their financial health and credit profile,” concludes Gaoaketse. “We encourage anyone experiencing financial hardship to reach out to us to discuss a Payment Arrangement or other possible solutions. Working together, we can help you navigate challenging times and protect your credit score, ensuring that you stay on track to meet your financial goals”.
If you are looking for more guidance on managing your finances effectively, the WesBank Talks Finance podcast offers a wealth of information on topics like managing debt and avoiding missed payments.
More from Cars
The Hidden Truth About Car Ownership in South Africa
Beyond the monthly payment: uncovering the hidden expenses that catch car buyers off guard. Imagine this: You Walk into a dealership, …
First Impressions: Bridgestone’s Dueler A/T002 is the New King of All Terrains
Bridgestone invited us to the official launch of its new all-terrain tyre, the Dueler All-Terrain A/T002.
The New Face of Car Auction Fraud: Why Smart Buyers Are Getting Burned
South African car buyers are losing thousands to sophisticated fake auction scams on social media. Learn the red flags, verification …
