Missing a refi loan payment can have several short and long term consequences. The extent of the fallout will depend on how long you take to make that missed payment and get all payments up to date.

Before looking into the consequences of missing a refi loan payment, it’s important to understand one thing. All refinanced student loans are private loans. There is no federal student loan refinancing. When you refinance a federal student loan it becomes a private loan. Federal loan terms and protections no longer apply to the refinanced loan. Instead, each private lender sets their own term, conditions, interest rates, and late payment consequences on the refinanced loan.

These 5 Things Will Happen If You Miss A Refi Loan Payment

#1. You’ll Incur Late Fees

Your loan is considered delinquent from the first day after a missed payment. It then stays that way till all payments are up to date.

Within a few days of the missed payment, you’ll receive a ‘missed payment’ notice from your lender. It will usually be accompanied by a request to make the missed payment by the next month. You’ll also be notified about having to pay a missed payment fee. This fee may vary from one lender to another. Some lenders charge a flat late fee. Others charge a percentage of the overdue amount. Still others may charge a flat fee or a percentage, whichever is higher.

A missed payment will stay on your credit report for up to 7 years from the first delinquency date. Potential lenders reviewing your creditworthiness are less likely to approve your application with a missed payment on your report.

#2. The Refi Loan May Go Into Default

If you don’t make the outstanding payment within 120 days of the due date, your loan goes into default. Loan default is serious and can have major long term implications. Your credit will suffer much more damage than it would for delinquency. Default makes it even more difficult to get any line of credit in the future.

#3. Your Credit Score Will Drop

If you pay the overdue amount within 30 days of the due date, you may get away with just the penalty. However, if the delinquency goes over 30 days, most lenders will report the missed payment to the credit bureaus. This can affect your credit score adversely.

Even one missed payment will reduce your credit score by a few points. Missing multiple payments can send your credit score plummeting by several points. This can make it more difficult for you to get other lines of credit in the future. Even if you do get approved for a credit card, mortgage or car loan, you’re likely to pay a higher rate of interest.

#4. The Lender May Apply For Wage Garnishment

Wage garnishment won’t happen with just one missed payment. However, it may happen if one payment is overdue by several months or if you miss several consecutive payments. Also, the lender cannot arbitrarily garnish your wages. They can only do this if they have a court order authorizing them to do so based on their lawsuit against you.

Wage garnishments allow the lender to withhold a percentage of each paycheck that you receive. A lender may be able to withhold as much as 25% of your monthly earnings. They can do this until they’ve collected the outstanding in full or you pay the outstanding amount and remove the loan from default.

#5. The Loan May Go To Collections

As with wage garnishing, this won’t happen with just one missed payment. It is more likely to happen if you miss several consecutive payments. On missing several payments, lenders send your debt to a collection agency. The agency will try and recover the money from you and charge you an additional 25% or more as their fee. This is over and above the original lender’s late payment fee. Having your loan go to collections only exacerbates the problem and can send you deeper in debt.

3 Tips To Avoid Missing A Refi Loan Payment

Lenders don’t care whether you missed a refi loan payment because you forgot or you couldn’t afford to pay the money. Regardless of the reason, you will have to pay the fine and face the other repercussions of the missed payment. Fortunately, there are ways to avoid this scenario. These tips will help.

Set up auto-pay. This is the single best thing you can do to ensure that all loan payments go out on time every month. Auto-pay involves setting up your checking account to make all loan payments automatically at a fixed date every month. You can set it so the money is transferred before each due date. This is easy to do as the amount is the same every month. Also, all refi loan payments have to be made by a fixed date every month. The only thing you need to be careful though is that your checking account has sufficient balance to make the payments.

Set up reminders. If you don’t have a consistent income or you prefer to make the payments manually, you must set up payment reminders. Use whatever works for you – a wall calendar, email alerts or phone notifications.

Call the lender. Most lenders will go out of their way to help you explore alternatives. It saves them from being forced to take drastic measures to collect the loan. The lender may suggest forbearance as an option if you’re struggling to meet your payments. Or they may suggest that you refinance again with an extended term to lower your monthly payments.

Staying on top of your loan payments is the key to avoiding the many unpleasant consequences when you miss a refi loan payment.