Does skipping a payment hurt your credit? | Loan Rescheduling

loan rescheduling - Capital Hills

Your bank or lender approves your loan based on your credit history and credit score. If you have a low credit history/score, then your bank/lender has the right to reject your loan application right away. Good credit is a sign that you have stayed current in your payments, which builds up trust in front of your lenders’ eyes. 

Skipping on a loan payment can negatively affect your credit history, eventually affecting your credit score. However, you can extend your loan payment date under certain circumstances, which we will take later. First, try your best to make your loan payment on time. Skipping an on-time payment is an indication to your lenders that you are not serious about paying off your debts, or it shows your financial incapability. Your credit score is entirely dependent on your loan repayment history.  

How severe is missing a payment?

A recent late payment will affect your credit score more than an older one. A missed payment can stay up your credit report for up to seven years.

However, don’t worry; it won’t make your score goes down by 100. If it drops your score by a good number, it will eventually wear off over time and go away completely.

If you miss out on your credit card payment by one day, then you don’t have much to worry about. Most lenders and creditors provide grace periods ranging from a couple of days to 10 days. It won’t be counted as a late payment if you make up your payment within the grace period. 

To know more, you must read the fine print on your account agreement or enquire your bank for the same. However, make sure not to make this a habit. 

Payment history and your credit score

Your payment history plays a crucial role in your credit score. It accounts for around one-third or thirty-five percent of your credit score. 

Two ways to skip a payment without hurting credit

The current global economy is reeling from the worse effect of the covid-19 pandemic, which has taken a financial toll on many individuals. Keeping that in mind, many banking and financial institutions in UAE have expended their assistance for customers to help them survive the adverse economic effect.

There are two ways you can skip or get relief from your loan payments without negatively affecting your credit score.

Rescheduling:

Loan rescheduling refers to the modification of a financial or loan payment term. In this scheme, the principal terms and conditions of the loan will remain unchanged. This process only allows you to extend or lengthen your loan tenure or revision of your payment installments.

Restructuring:

Loan restricting is a process that allows you to modify your loan’s principal terms and conditions. As a result, you can change the loan structure or type, including several other crucial changes to its terms. For example, if you have an overdraft term, then you can change it to term financing. Similarly, you can change your revolving loan into a non-revolving loan. This empowers customers to enhance their cash flow and overcome financial hurdles.

Process of loan rescheduling and loan restructuring 

The process of loan rescheduling and loan restructuring differs as per your loan facilities. Such as rules and regulations of conventional loan facilities differs from Islamic financial facilities.

Conventional Loan Facilities

Once your loan reschedules are approved by a bank, it will issue a supplemental letter. The supplemental agreement covers the new repayment terms and conditions between you as a borrower and the bank.

Islamic Financing Facilities

The Islamic bank will also provide you a supplemental letter once your loan rescheduling or restructuring is approved. According to Islamic financial law, you need to prepare a new legal document to note the new terms and conditions in rescheduling or restructuring. This is because Islamic finances emphasize the consent of contracting parties.

If you are restructuring sales-based finance involving a sale agreement, you must terminate the original sale first. The new agreement must be cross-referred with the original agreement after terminating the original agreement. 

Conclusion

Remember, your credit score will not improve as long as you are missing on those payments. A loan rescheduling is a temporary plan which is great if you hit a minor bump in your financials. If you need more relief, then you can consider loan rescheduling. Now you must have known how to use this knowledge to your business advantage. However, it is natural of you to have still some doubts that an expert can only clear. If you think so, you need to consult Capital Hills, one of the leading experts in loan rescheduling and financial meditation domains.
Location: United Arab Emirates

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