What Happens to a Cosigner When a Car is Repossessed?

If you were a cosigner on a car loan or car lease, and the owner of the car defaults on the loan, causing the car to be repossessed, you might be wondering, what happens to the cosigner when the car is repossessed? We will answer this question in much detail below.

What Happens to a Cosigner When a Car is Repossessed?

When a car is repossessed, the cosigner is just as liable for the repossession as is the person who financed or leased the vehicle. So, if the borrower fails to make payments on his car, the late payments will be reported on both the credit of the borrower and the cosigner, causing significant damage to both credit scores. Furthermore, a repossession will appear on both the main signer and the cosigner's credit report, causing further damage to both credit scores.

This is so because when a cosigner cosigns a loan, he is agreeing to be responsible for repaying the debt in the event that the borrower fails to make payments on it. When the primary borrower fails to make payments on his car loan, the lender will come after the cosigner for repayment of the debt.

Usually, when a car is repossessed, the lender will take possession of the car, sell the vehicle, and come after the borrower and the cosigner for repayment of the deficiency. The deficiency is the difference between what the borrower owed on the vehicle and how much the vehicle was sold for.

For example, if the borrower owed $14,000 on his car, and the lender was able to sell the car for $10,000, the lender will come after the borrower and the cosigner for the deficiency (remaining $4,000). This is usually the case because lenders are typically unable to recoup the full amount owed on repossessed vehicles.

If the borrower and cosigner do not pay the deficiency, the lender may sue both the cosigner and the borrower for the remaining deficiency, or the lender may sell the deficiency (remaining amount owed) to a collection agency. The collection agency will then aggressively attempt to recoup the remaining amount from the cosigner and the borrower.

What Happens to a Cosigner's Credit When a Car is Repossessed?

When a car is repossessed, a cosigner's credit will sustain significant damage as if he had taken out a loan to purchase the car himself. This is so because when a cosigner co-signs a loan, he is agreeing to make the payments in the event that the main borrower fails to make them. As such, any late payments, defaults, and repossessions will appear on the cosigner's credit report just as they would appear on the borrower's credit report, causing significant damage to both the borrower and the cosigner's credit scores.

That said, not only will the repossession appear on your credit report, other events that lead up to the repossession may be added to the cosigner's credit report. Such events include the following:

  • Late payments
  • Defaulting on the loan
  • Collections Account
  • Court judgments

How Long Does a Repossession Remain On a Cosigner's Credit Report?

A repossession will remain on a co-signer's credit report for 7 years from the date that the borrower became delinquent on making his car payment. After the 7 year period, the repossession will automatically be removed from the cosigner and borrower's credit report.

In the event that a repossession is not removed after 7 years, you can file a dispute with the credit reporting bureau reporting the repossession, asking them to have it removed because more than 7 years have passed since the borrower became delinquent on the car payments.

Note: A repossession will have the biggest impact on the cosigner's credit score when it is first reported. As the repossession ages and more times passes since the repossession first appeared on your credit report, its effect on your credit score will lessen. Typically, you should see a substantial improvement in your credit score within 2 years of the repossession being added to your credit report. Once the repossession is removed from your credit report, it will no longer affect your credit score.

How Does a Car Repossession Work?

When a borrower defaults on his car loan, usually the lender will give the borrower several chances to make payments on the loan. If the borrower fails to make payments on the loan, the failure will trigger the default terms in the car loan agreement. Usually, when a default is triggered, the loan contract gives the lender the ability to repossess the vehicle to satisfy the outstanding debt.

Usually, a person's car is not repossessed immediately after missing a single payment as lenders give borrowers a chance (usually up to 3 months) to make payments and get out of default. However, some lenders will begin the repossession process immediately after a missed payment. The amount of time it takes the lender to begin the repossession process can usually be found in the loan or lease agreement. Some lenders will act immediately, attempting to repossess a vehicle as soon as the borrower misses a single payment, while other lenders will attempt for weeks and months to collect the outstanding amount.

Repossessions are possible because the lender owns your vehicle until the vehicle is completely paid off. This is so because lenders almost always use the vehicle as collateral for the loan, allowing the lender to repossess (take possession) the vehicle as soon as you become delinquent on paying your loan.

In most states, the lender is not obligated to give the borrower advance notice that it is going to repossess your vehicle. For example, if you're out shopping and you've missed several payments on your car loan, the lender can send a tow truck to tow the car from the shopping center's parking lot without giving you advance notice.

That said, lenders are not thrilled when they have to repossess a vehicle, so it's usually a bad situation for both the lender and the borrower. Repossessions are bad for the borrower because the lender will likely sell the car for less than what the borrower owes on it.

Repossessions are bad for the borrower and cosigner because the repossession will appear on of their credit reports, causing significant damage to their credit scores. Furthermore, both the borrower and the cosigner will be liable for paying the remaining amount on the loan. Also, if the remaining debt is sold to a collection agency, the collection agency will come after the borrower and the cosigner for the deficiency, which is the difference between what the lender sold the car for and what the borrower owed on the loan.

Is a Cosigner Liable for a Repossession?

Yes, a cosigner is just as liable for a repossession as is the borrower. This is so because when the cosigner signs a loan agreement, he or she is agreeing to make payments on the loan in the event that the borrower fails to repay the loan on time. So, although you may have thought that merely signing your name on a friend or relative's loan agreement only helps them obtain the loan, you're wrong because you are basically signing, agreeing that to take responsibility for the loan if the borrower fails to repay it on time.

So, it should be clear that if the borrower defaults on the loan and vehicle gets repossessed, you're equally liable for the missed payment, the repossession, and the deficiency. So, if the borrower fails to make payments on the loan and you want to avoid damage to your credit, you should step in and make payments on the loan.

So, you might be asking yourself what is a deficiency balance? A deficiency balance is amount that you owe if a lender sells your car and the amount the car sold for is less than what the borrower owes on the car. A cosigner is responsible for the deficiency balance.

For example, if you cosigned a loan for your brother, and his vehicle gets repossessed for non-payment. If the lenders sells his vehicle for $10,000 and he owed $14,000 on the vehicle, the deficiency balance would be $4,000. Both the borrower and the cosigner are liable for the remaining $4,000 balance.

If there is a deficiency balance, one of two things may happen: the lender may try to collect the deficiency balance from the borrower or cosigner, or the lender may sell the debt to a collection agency, which will then come after the borrower and cosigner for the outstanding amount that's due.

To avoid problems, you should consider negotiating with your lender or the collection agency to settle the deficiency balance. If the lender has not yet sold the debt to a collection agency, you should try negotiating with the lender because if the debt is sold to a collection agency, the collection agency can cause additional damage to your credit score by reporting a collection account on your credit report.

How Can a Cosigner Improve His Credit Score After a Car is Repossessed?

A cosigner can improve his or her credit by following the tips below:

  1. Payments - Even if you've had a repossession and late payments added to your credit report, make sure that you continue to keep your other accounts in good standing. Your payments history accounts for 35% of your credit score, so continuing to make your payments on time will improve your credit score.
  2. Reduce Balances - Reducing the balances on your accounts will help your credit score. This is so because your credit utilization (how much of your available credit you're using) accounts for 30% of your credit score. So, paying down balances will dramatically improve your credit score. You should always strive to keep your credit utilization at or below 10% and never exceed 30%. If you exceed 30% credit utilization, your credit score will drop.
  3. Credit Applications - You should refrain from submitting too many applications for credit cards and loans. This is so because every time you apply for a credit card or loan, a hard inquiry is added to your credit report, reducing your credit score. Although a single hard inquiry will not drop your credit score by much, having too many hard inquiries will significantly reduce your credit score.
  4. Old Accounts - If you have old accounts that are in good standing open, you should keep them open. This is so because the average age of your accounts impacts your credit score. the older your accounts, the better your credit score will be.
  5. Review Credit Report - You should periodically check your credit report. This will help you detect any inaccuracies that appear on your credit report. For example, if a negative mark or account that does not belong to you appears on your credit report, you should dispute it to raise your credit score.

How Long Does Debt Settlement Stay On Your Credit Report?

If you settled an account for an amount that's less than what you owed, you probably noticed a debt settlement notation on your credit report. We often get asked how long does debt settlement remain on my credit report? We will answer this question in much detail below.

How Long Does Debt Settlement Stay On Your Credit Report?

Debt settlement stays on your credit report for 7 years from the date that you first became delinquent on your account. As the debt settlement ages, its impact on your credit score will lessen. After the 7 year period, the debt settled account will automatically be removed from your credit report. In the event that the account is not removed after 7 years, you can file a dispute with the credit reporting bureau reporting the account to have it removed from your credit report.

For example, if you became delinquent on your credit card (you did not make your payment) on January 1st, 2021, the debt settlement will remain on your credit report until January 1st, 2028, at which it will be automatically removed from your credit report.

Debt settlement is reported to the credit reporting bureaus because it serves to inform future lenders and creditors that you settled your debt and could not pay off the account as originally agreed upon between you and your lender. It allows future lenders to assess the risk you pose to them when it comes to lending you money. That said, although lenders will view a settled account negatively, having an account settled is much better than becoming delinquent on the account, which can cause significant damage to your credit score.

What Does Settled Account or Debt Settlement Mean?

Debt settlement and settling a debt refers to the situation where the lender agrees to accept payment on an account for an amount less than original agreed upon between the two parties. For example, if you charge $5,000 on your credit card and you've managed to pay down the card to $3,500. However, you experience financial troubles that prevent you from repaying the remaining $3,500, you may ask your lender to settle the account. If your lender agrees to accept a payment less than $3,500 (for example $2000), the account would be considered as settled. When an account is settled, the settled notation will be added to your account, alerting future lenders that you have settled an account in the past. The settled account will remain on your credit report for 7 years from the date that you first became delinquent on the account. Your account will continue to appear as settled even if you close down your account. After the 7 year period, the settled account will automatically be removed from your credit report.

Debt Settlement vs Being Current on Your Account

Debt settlement simply means that you paid off an account for less than what you owed on it For example, if you owed $5000 on your credit card and the bank agrees to let you off the hook for the debt in exchange for $3500, you would have settled the account. In such a situation, the settlement will be notated on your credit report, lowering your credit score.

On the other hand, staying current on your account means that you are continuing to pay off the account as originally agreed upon between you and your lender. That said, if you're falling behind on payments for one of your accounts, you should continue to make payments on the accounts you can afford to pay off. This is so because having one late account is better than having multiple late accounts.

How Does Debt Settlement Affect Your Credit Score?

Debt settlement will have a significant negative impact on your credit score, the higher your credit score, the bigger the drop in your score. That said, the effect on your credit score will depend on the current condition of your credit, how much of your available credit you're utilizing, and whether you have other negative marks on your credit report. If you already have multiple negative marks on your credit report, you may not notice as significant of a drop as someone who has a flawless credit history.

So, you might be wondering: why does debt settlement lower your credit score? You paid off the account and settled it.

Debt settlement lowers your credit score because you have demonstrated an inability to pay off your account as originally agreed upon between you and your lender. The credit scoring system rewards those who pay their accounts as agreed upon originally and dings those who fail to repay their debt as originally agreed upon.

Since you paid off a portion of your debt and not the full amount as originally agreed, your credit score will suffer. Additionally, the notation on your credit report serves the purpose of alerting new lenders and creditors that you did not pay an account as initially agreed upon so that they can better assess the risk of lending money to you in the future.

Furthermore, if you've settled your debt after having late payment marks added to your credit report, your credit score may have already taken a hit, so a debt settlement notation may not cause that much damage to your credit score.

Can You Remove a Debt Settlement From Your Credit Report?

If you have yet to settle an account, you can try to negotiate with your lender by asking them not to add the settlement notation on your credit report in exchange for you paying off the debt. Some lenders may agree to close the account in good standing in exchange for a partial payment on the debt you owe them. However, some lenders may not be willing to negotiate this way.

In the event that you have already settled an account and the notation has been added to your credit report, it is very difficult to have it removed from your credit report. You will only be able to remove a debt settled account if there is an error in the information that appears on your credit report or the account does not belong to you and was reported on your credit report as a result of an error.

If the account does not belong to you or there is an error in the information, you should file a dispute with the credit reporting bureau reporting the incorrect information. Typically, after you file a dispute, the credit reporting bureaus will render a result within 30 days or less after conducting an investigation to determine whether there was an error in the information that you're disputing.

If the investigation finds that there is no error, the account will remain on your credit report, however, if they find that there is indeed an error, the account will be removed from your credit report.

How to Improve Your Credit After Debt Settlement?

If you want to improve your credit after settling your debt, you should do the following:

Make all of your payments on time - Your payment history accounts for 35% of your credit score, so making your credit card and loan payments on time will improve your credit score. If you've fallen behind on one account, do not stop making on your other accounts. Keep paying the accounts you can afford to pay as this will prevent further damage to your credit.

Reduce your balance - Your credit utilization (how much of your available credit you're using) accounts for 30% of your credit score, so if you want to improve your credit, you should pay off as much of your debt as you possibly can. Reducing your balance on things such as credit cards and loans will improve your credit score. You should try to keep your credit utilization below 10% of your available credit and never exceed 30%. If you exceed 30% of your credit utilization, you will see a drop in your credit score.

Keep old accounts - If you have old accounts that are in good standing and have a positive payment history, you should keep them open. This is so because your account ages accounts for 15% of your credit score, so keeping old accounts in good standing open will add to your account age, boosting your credit score.

Don't submit too many credit applications - If you want to improve your credit score, you should refrain from submitting too many credit applications within a short period of time. This is so because every time you submit a credit application for things such as a credit card or loan, a hard inquiry is added to your credit report. Although a single hard inquiry will have a small negative impact on your credit score, if you accumulate too many within a short period of time, you will notice a significant drop in your credit score.

Check your credit report - You should periodically check your credit report to ensure that nothing negative is causing a drop in your credit score. If you find something pulling down your score, you should address it. Additionally, if inaccurate or incorrect information was added to your credit report, you should dispute the inaccurate information with the credit reporting bureau reporting the information.

Bottom Line

At this point, you probably know that debt settlement remains on your credit report and continue to affect your credit score for seven years starting from the date you first became delinquent on your account. That said, as the debt settlement ages, its impact on your credit score will lessen. If a debt settlement notation was added to your credit report in error, you should dispute it with the credit reporting bureau reporting inaccurate or incorrect information. However, removing a valid debt settlement from your credit report is extremely difficult, if not impossible to do. If you have any general questions or comments about debt settlements, please feel free to leave them in the comments section below.


Can a Paid Charge Off Be Removed From Credit Report?

If you've had an account that has been charged off, you might be wondering whether paying a charged off account will remove the charge off from your credit report? We will answer this question in much detail below.

Can a Paid Charge Off Be Removed From Your Credit Report?

A paid charged-off account entry cannot be removed from your credit report even if the charge off is paid. A charge-off will remain on your credit report for seven years from the data that you first became delinquent on your account. The only way to remove the charge off is to prove that the charge off does not belong to you or there was an error in the charge off, which is often very difficult to do.

Creditors usually charge off accounts after the account has been delinquent for 180 days or more. Delinquency is a term of art that refers to the payments required on an account. So, if more than six months pass without any timely payments on an account, the account is charged off and a charge off notation is added to the account, indicating that the account has not been paid as originally agreed upon.

Before an account is charged off, 30 days, 60 days, 90 days, 120 days, and 180 days late notations will appear on the account, moving the account from the accounts in good standing section of your credit report to the negative accounts section on your credit report. Also, the outstanding debt will appear on your credit report. Creditors often choose to charge off accounts after they have been 180 days late. If this occurs the account will appear as charged off, indicating the outstanding debt that has been charged off.

If your credit decides to sell your debt to a collection agency, which is often the case, the outstanding amount will turn to $0 and the collection agency will then take over the account, and attempt to collect the outstanding amount from you. Even if a charged-off account is sold to a collections agency and the balance is set at $0, the charged-off account will remain on your credit report for seven years from the date that you first became delinquent on your account.

For example, if you became delinquent on your account on January 1st, 2022, and the account was charged off on July 1st, 2022, the charge off will remain on your credit report until January 1st, 2029. After the charge off has been added to your credit report, it will automatically be removed from your credit report without you having to do anything to remove it. That said, a charge off has a significant negative impact on your credit score because it shows future creditors and lenders that you were unable to pay off your account as originally agreed upon, making you a risky person to lend money to.

Furthermore, just because your debt is charged off does not mean that you're no longer liable for paying back the money, you are still on the hook and have a legal obligation to repay the outstanding debt.

If the charged-off account has not been sold to a collection agency, you still have the option to pay back the money to the original creditor. If you repay the charged-off account, the notation on your account will be changed from charged-off to paid charge off. Unfortunately, paid and unpaid charge offs have the same impact on your credit score. So, when comes to your credit score, there is no benefit associated with paying a charged-off account. That said, lenders often view paid charged offs as less negative than outstanding charge offs.

Collection Account After a Charge Off

Typically, creditors and lenders sell the outstanding debt associated with charged-off accounts to collections agencies. Collection agencies will then aggressively attempt to collect the outstanding debt from you.

Usually, when attempting to collect the debt, collection agencies will add a collection account to your credit report in the amount of the outstanding debt. Collection accounts will add further damage to your credit as they will appear on your credit report under the collection accounts section of your credit report.

After your debt is sold to a third party collections agency, the charge off account will appear with a $0 balance as the collection agency has taken over the outstanding debt.

Collection agencies are extremely aggressive in the debt collection efforts, and they will bombard you with letters and phone calls several times a day, attempting to collect the outstanding debt that is now owed to them.

How Does a Charge Off Affect Your Credit Score?

A charge off negatively affects your credit score. That said, before a charge off is added to your credit report, you probably had 30 day, 60 day, 90 day, 120 day, and 180 day late payment marks added to your credit report, so it's likely that your credit already sustained significant damage. When a charge off is added to your credit report, your credit score will further suffer because charges off are negative marks. The exact number of points that your credit score will drop is different from one person to another and depends on what else is in your credit report.

The higher your credit score, the bigger the drop you will experience as a result of a charge off being added to your credit report. The best thing that you can do for your credit is to avoid negative marks altogether. However, in the event that a negative mark such as charge off is added to your credit report, you should try to avoid further negative items from appearing on your credit report by making all of your payments on time. If you are suffering financial difficulties, contact your lenders and ask them about your payment options.

Should You Pay a Charge Off?

If you want to pay a charge off to improve your credit score, you should be aware that both a paid and unpaid charge off have the same negative impact on your credit score. However, keep in mind that you are legally obligated to pay off your outstanding debts. When future lenders and creditors look at your credit report, they will view paid off charge offs as more favorable than unpaid charge offs, so from that perspective, it does make sense to pay off a charge off. That said, charge offs are highly negative marks that are added to a person's credit report, oftentimes, many lenders will refuse to lend you money if a charge off appears on your credit report. That said, a paid charge off looks better on your credit report than an unpaid one.

How to Remove a Charge Off From Your Credit Report?

A valid charge off that contains no errors cannot be removed from your credit report. You must wait for seven years for a valid charge off to be automatically removed from your credit report. That said, if you have a charge-off that does not belong to you or contains any errors, you can have the charge off removed by filing a dispute with the credit reporting bureau reporting the chargeoff.

For example, if a charge off appears on your Transunion credit report, and the charge off does not belong to you or there is some error in the charge off, you should file a dispute with Transunion to have the charge off removed. If the invalid charge off appears on more than one credit report, you must file a dispute with every credit bureau reporting the inaccurate information.

Disputes can be filed online with every credit reporting bureau. For example, you can file a dispute online with Experian, Transunion, and Equifax. Also, you can call them and file the dispute over the phone or by mail. However, the quickest way to file your dispute is to do so online by visiting each of the credit reporting bureaus and filing the dispute.

How to Avoid Having a Charge Off Added to Your Credit Report?

Oftentimes, when people find themselves in a financial crunch, unable to make payments on a credit card, they believe that ignoring the debt will make the problem disappear. However, ignoring a delinquent or soon to be delinquent account is the worst thing that you can for your credit. As cringeworthy as it may seem, you're better off contacting your creditor and lender, explaining your situation to them, and asking them for assistance. Some creditors or lenders will offer you the ability to pay down the balance in small chunks. This is a much better alternative to having your lender charge off your debt and report the negative information to the credit reporting bureaus. Reaching a compromise with your lender or creditor is the best thing you can do to save your credit from the damage that's caused by having late payments and charge-offs reported to the credit reporting bureaus.

Frequently Asked Questions (FAQs)

1. Should I pay off a charged off account?

If you want to improve your credit score after a charge off has been added to your credit report, you should know that paying a charge off will not improve it. Paying a charge off will not remove it from your credit report, instead the charge off will go from charged off to charged off paid. Although your credit score will not improve, having a paid charge off on your credit report is better than an unpaid charge off because lenders view paid charge offs more favorable than unpaid charge offs.

2. How long does it take to have a charge off removed from my credit report?

A charge off will be automatically removed from your credit report within 7 years of you first becoming delinquent on your account. After 7 years, the charge off will automatically be removed from your credit report.

3. Does a charge off affect credit score?

Yes, a charge off will affect your credit score. In fact, a charge off is one of the most negative marks that can be added to your credit report. Even a charge off that's paid in full will have a negative impact on your credit score.

4. What happens when a charge off is removed from your credit report?

You will notice a significant improvement in your credit score once a charge-off is removed from your credit report. Just make sure to keep all of your other accounts in good standing and you should notice a decent improvement to your credit score. A charge off will have the most negative impact on your credit score when it's first added. As the charge off ages, its impact on your credit score will begin to lessen until it's ultimately removed from your credit report.

5. Can you dispute a charge off on your credit report?

Yes, you can dispute a charge off on your credit report, however, the credit reporting bureaus will not remove it unless there is an error in the information report or the charge off does not belong to you. However, a valid charge off cannot be removed from your credit report. It will remain on your credit report for seven years from the date you first missed a payment on your account. After 7 years, the charge off will automatically be removed from your credit report.


What Happens If You Only Pay the Minimum Payment on Your Credit Card?

If you're like most Americans, you probably have a credit card and if you have a balance on your credit card, you might be wondering what happens if you're only making the mini payment on your credit card?

What Happens If You Only Pay the Minimum Payment On Your Credit Card?

If you only pay the minimum payment on a credit card, your account will remain in good standing, however, it will take you significantly longer to pay off your credit card if you're only making the minimum payment. That said, if you're experiencing financial difficulties, it may make sense to only make the minimum payment on your credit card to avoid having the account being reported as having missed payments.

If you're only making the minimum payment on your credit card, you should keep in mind that it will take you significantly longer to pay down your outstanding debt and you will end up paying a lot more interest by prolonging the repayment process.

Your minimum payment amount will depend on the balance you have on your credit card. Usually, the minimum payment you're required to pay will be based on a percentage of the balance you owe on your account. Also, there is usually a minimum payment of $25 if you owe more than $25 on your account. Typically, credit card minimum payments are based on 1% to 2% of your outstanding balance.

For example, if you owe $1000 on your credit card, you will most likely be charged a minimum payment of $25, which is roughly 2% of the balance on your credit card. If you owed $2000 on your credit card, your minimum payment would be $40, which is equal to two percent of $2000.

Although making the minimum payment on your credit card account will keep your account in good standing and avoid having late fees placed on your account, it will take you a very long time to pay off your credit card. In fact, many card issuers place warnings on credit card statements, informing consumers that only making the minimum payment significantly increases the amount of time for paying off a credit card.

You can significantly reduce the amount of time it takes you to pay off your credit card. For example, making double the minimum will reduce the amount of time it takes you to pay off your credit by half, significantly reducing the amount of interest you will have to pay on the outstanding balance.

Overall, if you were wondering whether it's okay to only make the minimum payment on your credit card, now you know that it's okay. However, if you accumulate too much debt, you could see a decrease in your credit score.

Interest Charges

If you have a balance on your credit card, you should keep in mind that as the balance on your credit card increases so does the amount of interest that you will pay on the balance. If you're only making the minimum payment on your credit card, you will be only paying off the interest on your credit card and a small portion of the principal balance, causing you to only accumulate more debt if you're continuing to use your credit card.

If you want to calculate the monthly amount of interest that you're paying on your credit card, you should divide your interest rate by 12 months and multiply it by the account on your balance.

For example, if you have a $4,500 balance on your credit card and an APR of 18% the calculations will look as follows: 18% / 12 months = 1.5% monthly interest rate. Multiply 1.5% by $4,500 = $67.50. In this example, you will be paying $67.50 in interest every month. So, if your monthly payment is $90, $67.50 would go towards interest and only $22.50 would go towards paying down the principal balance.

So, if you want to reduce the amount of money you pay in interest, you should make more than just your monthly payment. If you have the disposable income to pay off your card, try to pay off as much of the balance as you possibly can to reduce the amount of interest that you owe.

Does Making Only the Minimum Payment On Your Credit Card Hurt Your Credit Score?

No, merely making only the minimum payment on your credit card will not hurt your credit score. However, if the balance on your credit card continues to grow since you're only making the minimum payment, the increase in balance can lower your credit score.

A climbing credit card balance will lower your credit score because your credit utilization accounts for 30% of your credit score, so the greater your balance, the bigger the drop in your credit score. As a rule of thumb, you should only use up to 10% of your available credit and never exceed 30% usage.

That said, if you have experienced a drop in your credit score because of using too much of your credit limit on a credit card account, the solution to increasing your credit score is simple: pay down your credit card, reducing your credit utilization below 30% of your credit limit. For example, if you have a credit card with a credit limit of $1,000, you should keep your credit usage below $300 for the best results.

That said, if you have a high credit balance, making the minimum payment is still a good idea. This is so because it keeps your account in good standing and prevents you from paying late fees for missing the payment. That said, you should not make the minimum payment forever, you should try to make larger payments to pay down your outstanding debt.

How is the Minimum Payment On Your Credit Card Calculated?

Your minimum payment is usually calculated by multiplying your balance by 1% to 2%, also there is a floor or minimum payment that typically applies. Minimum payments usually start at $25 or $35, however, if your balance is lower than this amount, your balance will be your minimum payment. For example, if you only charged $14 on your credit card, your minimum payment would be $14. However, if you charged $200, your minimum payment would be $25 even though 2% of $200 is $4. That said, if you have a large balance, such as $3,500, your minimum payment would be 1% to 2% of that amount, brining your minimum payment anywhere from $35 to $75, depending on your card issuer.

What Happens When You Only Make the Minimum Payment?

Making only the minimum payment will keep your credit card in good standing, however, if you have a large balance on your credit card, it will take you a very long time to pay it off. You should make as large of payment as you can afford to make to reduce the balance on your credit card.

Does Paying More Than the Minimum Payment Help Your Credit?

Making more than the minimum payment can help your credit because it reduces your credit utilization. Credit utilization refers to the amount of your available credit you're using. Typically, the less of your available credit you use, the better your credit score will be. So, if you pay more than just the minimum payment, significantly reducing your credit balance, you will notice a boost in your credit score. Of course, this will be different from one person to another, depending on the other information that's on your credit report.

Frequently Asked Questions (FAQs)

1. Can you only make the minimum payment on a credit card?

Yes, you can only make the minimum payment on your credit card and your account will remain in good standing. However, if you have a large balance on your credit card, it may take many years to pay down your balance if you're only making the minimum payment. To decrease a large balance, you should aim to double your minimum payment, this will help you pay down your credit card twice as fast.

2. What is the minimum payment on a $5000 credit card?

The minimum payment on a $5000 credit card ranges from $50 to $100, depending on how your card issuer calculates your minimum payment.

3. Does making only the minimum payment hurt your credit?

Making only the minimum payment will not hurt your credit score. However, having a large balance on your credit card will lower your credit score. If you only pay the minimum payment and continue to rack up debt, your credit score will suffer. However, merely making the minimum payment on a credit card will not hurt your credit score.

4. Will the bank cancel your credit card if you only make the minimum payment?

It's unlikely that a bank will cancel your credit card for merely making the minimum payment. However, if you accumulate too much debt on your credit card and can't pay it off, the bank may lower your credit limit and close the account. You should always to keep your credit utilization at 10% and never exceed 30% to stay on the safe side.


Do You Have to Pay Income Tax on a Personal Loan?

If you are thinking about taking out a personal loan, you might be wondering you have to pay income tax on a personal loan? We will answer this question in much detail below.

Do You Have to Pay Income Tax on a Personal Loan?

No, you do not have to pay income tax on a personal loan because personal loans are not taxable since the money you receive from a personal loan does not fall under the definition of income because they are borrowed funds that must be repaid. However, if a portion or all of your personal loan is forgiven, you may need to report the portion forgiven or canceled as taxable income.

Earnings and wages, on the other hand, are income because they add to your wealth, as such they are taxable. So, if you have taken out a personal loan, you do not have to report the funds dispersed to you on your income tax return. This applies to personal loans from banks, credit unions, and even friends.

When you receive a loan from a bank or financial institution, the money is almost always non-taxable because you pay a pre-determined amount of interest on the loan. However, if you take a personal loan from family or friends although you will not need to report the money as taxable income on your personal income tax return, you may be liable for other forms of tax if you receive $15,000 or more in a single year as the IRS may consider the money loaned to you a gift instead of a loan.

Do You Have to Pay Income Tax If Your Personal Loan is Forgiven or Cancelled?

Yes, if all or a portion of your personal loan debt is canceled or forgiven, you need to pay personal income tax on the portion of the loan that's forgiven or canceled. This is so because the government considers the cancelled debt as taxable income.

For example, if you borrow $4,500 from Bank of America and you were unable to make payments on the remaining $2,000 that you owe them, if the bank forgives the $2,000, you must report the $2,000 that's forgiven as taxable income because canceled debt is classified as taxable income.

The same logic applies to all other types of canceled debt, including student loan debt and medical bill debt. For example, if you have been paying back your student loan for 15 years and you have 5 years remaining if your $7,500 student loan is canceled out, you will have to report the $7,500 as taxable income on your Federal Tax Return.

That said, some student loan forgiveness programs permit borrowers to exclude the forgiven amount without any tax consequences. That said, if you've had any type of debt forgiven or canceled, you should consult with a tax attorney to ask them about any of the consequences.

What Are Personal Loans?

Personal loans include money borrowed from banks, financial institutions, employers, or through peer-to-peer lending networks. The borrowed funds can often be used to make any purchases, consolidate debts, buying a car, paying for a wedding, or making any other type of large purchase.

Personal loans are different from auto loans and home loans in that personal loans do not require collateral, meaning they are unsecured loans. So, in the event that you default on the loan, there is no collateral for the bank to repossess. This is different from car loans where the collateral is the vehicle you're driving and home loans where the home is the collateral for the loan.

Since there is no collateral for person loans, banks and financial institutions typically charge a higher interest rate on such loans to compensate themselves for taking a bigger risk on lending money.

That said, since personal loans need to be paid back, you are not required to pay income tax on them.

Are Interest Payments on Personal Loans Tax Deductible?

Not all loans are eligible for tax-deductible interest rates. However, with loans such as home loans, student loans, and business loans, you can deduct the interest you pay on such a loan. That is, you can reduce the amount of income you have to pay taxes on by deducting the interest on these loans from your income. That said, you cannot deduct the interest that you pay on a personal loan from your taxable income. However, there is one exception: if you use all or a portion of the money borrowed for a business purpose, such as renting an office or buying supplies for your business, you will be able to deduct that amount from your taxable income. That said, before you utilize this exception, you should consult with a licensed tax attorney in your jurisdiction.

What Are the Best Places to Get Personal Loans?

You can get loans from Banks and other financial institutions, such as credit unions. Credit unions tend to charge lower interest rates than mainstream banks and are more likely to lend money to people with low credit scores. Mainstream banks are likely to lend people only to people with good to excellent credit scores and people with poor credit will find it difficult to qualify for a loan from such banks.

That said, you will be able to get money from the following places:

  • Banks
  • Credit Unions
  • Employer
  • Peer to Peer Lending Networks
  • Online Lenders

Frequently Asked Questions (FAQs)

1. Can you get a person loan to pay off taxes?

If you owe either the State of Federal Government money, it is possible to take out a person to pay off your tax debt. Just keep in mind that you will likely need to pay interest on the loan, but it maybe worth it if the interest on the loan is lower from the interest charged by the IRS or State Government on the outstanding amount that's due to them.

2. Is a loan considered as income for unemployment purposes?

No, the money you get from a personal loan is not considered as income for unemployment purposes. This is so because personal loans are debts that need to be repaid, therefore, they are not considered as income for purposes for unemployment. So, if you took out a personal loan, you do not have to report it as income to get unemployment. That said, it will be quite challenging to get a personal loan if you're currently on employment because the bank wants to know that you are capable of repaying them the money that you've borrowed.

3. Are loans considered as income?

No, loans, including personal loans, are not considered as income because they are debts that must be repaid. Therefore, if you took out a loan, you are not required to report it as taxable income.


How Long Does a Balance Transfer Take?

If you're thinking about opening a new credit card or balance transfer card, you might be wondering how long does it take to perform a balance transfer. We will discuss the answer to this question in much detail below.

How Long Does a Balance Transfer Take?

A balance transfer usually takes 5 to 7 days business days to perform. However, in some circumstances, it may take longer to perform a balance transfer. When transferring a balance from one card to another, it's important that you continue to make any payments that are due on the card. If you fail to make the payments that are due, you could cause significant damage to your credit.

People often choose to perform balance transfers because it allows them to reduce some of the interest that they pay since, most often, they are moving a balance from a high-interest rate card to a lower interest rate credit card. If performed properly, balance transfers can save you a ton of money on interest, especially if you're transferring money from a high-interest credit card to a newly opened credit card with 0% APR.

Card issuers handle balance in two different ways. Some banks issue an electronic credit to the credit card account that you want to transfer a balance from, while other banks will mail you a check that you will need to mail to your card issuer to perform the balance transfer. Electronic transfers are much faster than having to wait for a check and having to mail it to your card issuer.

To make a balance transfer, you must contact the card issuer you want to transfer your balance to and provide them with the details of the credit card account you want to transfer a balance from. If the bank approves your request to transfer your balance, they will initiate the balance transfer process. Usually, balance transfers take a few days to process. In most cases, you should be able to process a balance transfer within a maximum of 7 business days, in some circumstances, your balance transfer may take longer.

How Long Does a Bank of America Balance Transfer Take?

Bank of America states that it takes 2 to 4 business days to perform a balance transfer. However, if you're transferring a balance to a newly opened Bank of America Credit Card, the balance transfer can take up to 14 days to process. A balance transfer is complete when your Bank of America credit card shows the balance that has been transferred.

How Long Does an American Express Balance Transfer Take?

American Express states that it takes 5 to 7 business days to perform a balance transfer. That said, under some circumstances, it could take up to 6 weeks for American Express to perform a balance transfer. American Express will notify you of the status of your balance transfer by mail. To check on the status of your balance transfer, you should contact American Express and ask them about it.

How long does a Capital One Balance Transfer Take?

Capital One states that it takes up to 10 business days to perform a balance transfer. The amount of time it will take depends on whether an electronic transfer is performed or the transfer is performed by mail. Electronic transfers are much quicker than mail balance transfers. Capital One adds that a balance transfer can be approved immediately in some cases, taking just a few business days to complete a balance transfer.

How Long Does a Chase Balance Transfer Take?

Chase states that balance transfers typically take 7 business days to be processed, however, in some circumstances, a balance transfer can take up to 21 business days to perform. The amount of time it takes a balance transfer to post depends on how quickly the payee processes the balance transfer. Additionally, Chase states that it tries to process most balance transfers within 7 business days, so you can expect it to take that long.

How Long Does a Citi Bank Balance Transfer Take?

Citi Bank balance transfers take between 2 to 21 business days to be processed. That said, if you've opened a new credit card account, it will take a minimum of 14 days before your balance transfer is processed. That said, the amount of time it takes to perform a Citi Bank balance transfer is different from one person to another.

How Long Does a Discover Balance Transfer Take?

Discover states on its website that it takes 4 business days to perform a balance transfer. That said, to make a balance transfer, an account must have been open for at least 14 days. If you recently opened an account, it could take 14 days to perform a balance transfer with Discover. Discover recommends that you make any payments that are due on your account while you wait for the balance transfer process to complete.

Should You Make a Balance Transfer?

A balance transfer may be right for you if you can transfer your balance to a credit card that has a lower interest rate than the credit card you have a balance on. This is so because you may be able to save a significant amount of money on the interest that you pay.

So, if you have a credit card with a low APR (annual percentage rate), you should consider performing a balance transfer. If you already have a balance transfer credit card, you can use it or you can apply for one that permits balance transfers. Usually, when you first apply for a credit card, some card issuers give you a period (usually 12 months) during which you are not charged any interest.

Additionally, some card issuers may present you with a balance transfer offer that allows you to make a balance transfer and pay 0% interest for a predetermined period of time, which is usually 12 to 16 months.

You should try to pay down as much of your credit as you possibly can while you have an interest free period. This is so because all of the money that you pay goes towards paying down your credit card balance since you're not charged any interest.

Once the special period ends, you will be charged interest, making it significantly more difficult to pay down your balance.

Additionally, before transferring your balance to a different credit card, you should make sure that the balance transfer fees don't cancel out the money you'll save by transferring the balance.

This is so because most banks charge 3% to 5% for performing balance transfers. The fee can add up if you're transferring a very large balance from one card to another. So, make sure that the balance transfer doesn't wipe out of money you're saving.

Do Balance Transfers Affect Your Credit?

Simply making a balance transfer alone will not hurt your credit score. However, if you submit too many credit card applications hoping to be approved for one, your credit score can drop because each card you apply for will leave a hard inquiry on your account. Additionally, transferring your credit card balance to a balance transfer card, consider keeping your old account open.

This is so because credit scores tend to drop after the closure of an account that was in good standing. So, make the balance transfer and keep your credit card account open. Additionally, when making a balance transfer, transfer the balance to a credit card account that has a much higher credit limit than the amount of balance transferred. This is so because your credit utilization accounts for 30% of your credit score, so utilizing as little of your available credit is vital to improving your credit score.

What Should You Do If Your Balance Transfer is Taking Longer Than Expected?

If your balance is taking longer than expected, the first thing that you should do is contact the bank or card issuer to which you're transferring your balance to. Once you contact them ask them about the status of the balance transfer as they will have the most up to date information.

For example, if you're transferring a balance from your Chase Sapphire Credit Card to your Bank of America Cash Rewards Visa Card, you should contact Bank of America and inquire about the status of the balance transfer. This is so because it's the card issuer that is issuing the credit to the other bank, that is responsible for performing the balance transfer. In the event that the bank states that it issued the credit, you should contact the other bank to ensure that they applied the credit to your account.

How Can You Get a Balance Transfer Credit Card?

To get a balance transfer credit card with a low-interest rate, you should first identify a card that offers this and assess whether your creditworthiness qualifies you to obtain the card. If you have the required credit score, you should submit an application and see if you're approved.

Oftentimes, during the application, you will be given an opportunity to enter the account information of the account from which you want to transfer a balance. If approved, it will take a few days to process your balance transfer. If you're not given this option, you can request a balance transfer once your account is opened a credit card is issued to you. That said, you should keep in mind that the 0% APR rate is usually for a limited time that ranges from 6 to 18 months.

Should You Track the Status of Your Balance Transfer?

Yes, you should definitely track the status of your balance, ensuring that the balance transfer goes through. If you submit a balance transfer request and don't follow up, you could cause significant damage to your credit.

You could cause damage to your credit in the following scenario: suppose you request a balance transfer and for any reason, the balance transfer doesn't go through and you don't make the payment on your credit card. If more than 30 days pass from the due date of your payment and you have not made the payment, the late payment will be reported as a missed payment on your credit card account.

A single late payment can knock down your credit score by more than 100 points. So it's best to follow up to ensure that the balance transfer has gone through. If for any reason, the balance transfer has not been credited to your account before your due date, you should go ahead and make at least the minimum payment to avoid damage to your credit.

Frequently Asked Questions (FAQs)

Here are some of the most frequently asked questions we get from our site visitors:

1. Why do balance transfers take so long?

The amount of time it takes to perform a balance transfer depends on the process that the card issuer has for performing balance transfers, as well as whether the balance transfer is done by mail or electronically.

2. Can a balance transfer be denied?

Yes, a balance transfer can be denied. Your balance transfer can be denied if the balance to be transferred exceeds your credit limit or if the balance to be transferred is too large for your card issuer. You can be denied a balance transfer for a variety of other reasons.

3. Are balance transfers immediate?

No, balance transfers are not immediate. The amount of time it will take you to performance a balance transfer depends on how your card issuer handles the process, as well as whether you're transferring the balance to a new account or established account.

4. What happens when you perform a balance transfer?

With a balance transfer, the issuer of a balance transfer card issues a credit to the credit card with the balance as is done when you issue a payment on the amount. The amount credited to the credit card is taken from the balance transfer card and appears as a balance on the new card.


Can You Have a Negative Balance On a Credit Card?

If you're like many Americans, you may be wondering whether its possible to have a negative balance on your credit card. We will answer the question: Can you have a negative balance on your credit card in much detail below.

Can You Have a Negative Balance On a Credit Card?

Yes, some card issuers will allow you to have a negative balance on your credit card. A positive balance on your credit card indicates that you owe the card issuer money whereas a negative balance indicates that the card issuer owes you money. For example, if your credit card indicates that you have a -$150 balance, this means that you have a $150 credit with the card issuer. As soon as you begin spending money on your credit card, you will use up the credit on your card and will begin to accrue a positive balance. Usually, if you have a credit on your credit card, you will not have to make a monthly payment as you do not owe anything on your credit card.

You Can Have a Negative Balance On a Credit Card in the Following Situations:

Payment That Exceeds Balance

There are a number of reasons that could leave a credit on your credit card. For example, if you make a payment on your credit card that exceeds your balance, you will have a credit. Although some credit card issuers will not allow you to make a payment that exceeds your available credit, some card issuers do allow the practice, leaving you with a positive balance known as a credit.

Return & Refund

The second situation where you could see a credit on your account is if you made a purchase on your credit, you paid off your credit card, and then returned the item. In this situation, since you've paid off your card when the money is refunded to your credit card, your card account will show a credit.

Fraudulent Credit Card Charge Reversal

The third situation where you could end up with a credit card is when you pay off your credit card including paying off any fraudulent charges that were made on your account. If you later discover that fraud has occurred and ask your card issuer to remove the fraudulent charges, this will result in a negative balance on your account.

Statement Credit

Some card issuers offer their customer a statement credit after they've made qualify charges. If this happens and your card issuers issue you a statement credit, the statement credit could result in a negative balance, especially if the statement credit exceeds the balance you have on your credit card account.

Does Having a Negative Balance On a Credit Card Lower Your Credit Score?

No, a negative balance on a credit card will not lower your credit score. No negative information will be added to your credit report if you have a credit balance on your credit card. This is so because the card is paid as agreed. In fact, having a negative balance is reported as having a $0 balance, which will help your credit score because you have 0% credit utilization. The lower your credit utilization, the better your credit score will be. This is so because your credit utilization accounts for 30% of your credit score.

If you leave a negative balance on your account, you will be able to spend more on your credit card. For example, if you have a $3,500 credit limit and you have a negative balance of $350, you will be able to spend $3,850 on your credit card. This is so because you are first spending the credit on your account and you are then tapping into your credit limit. That said, leaving a negative balance on your credit card does not increase your credit limit, but it does allow you to spend more since you have a credit on your credit card account.

Should You Do Anything If You Have a Negative Balance On a Credit Card?

If you have a negative balance on your credit card account, there is nothing you need to do. In fact, as soon as you start spending money on your credit card, the credit you have will be applied to the new charges. For example, if you have a $250 credit and you charge $300 on your account, the $250 credit will be used to cover the transaction, leaving you with a balance of $50.

If you have a credit on your credit card account and you want the money, you should contact your card issuer and ask them to deposit the money into your account. The card issuer may send the money to your checking account or cut you a check in the amount of the credit on your account.

In fact, if you have a credit on your credit card, The Truth in Lending Act requires credit card issuers to refund credits that a consumer may have on his credit card within 7 business of receiving a written request from the consumer asking the card issuer to refund the credit.

If you card issuer operates out of physical locations, you can try going into your bank branch and asking a teller to give you the money in cash. Some card issuers may be willing to do this.

The quickest way to benefit from a credit on your credit card account is to simply use your credit card. If you have a credit on your credit card account, as soon as you use your credit card, you will use up the credit on your account. That said, if you need the money and can wait to get it, you can ask your card issuer to deposit the money into your savings or checking account.

What Should You Do if You Have a Credit or Negative Balance on a Closed Credit Card Account?

If you have a credit card and you've made a payment that exceeds the balance on a credit card that you have closed, your money is not lost. In fact, federal laws gives you six months to request that the card issuer return the credit to you. To get the credit, you should contact your card issuer and explain to them that you closed your credit while leaving a negative account balance on your credit card. The card issuer will then either deposit the money into your account or send you a check in the amount of the negative balance or credit.

Is It Bad To Leave a Negative Balance on Your Credit Card?

There is nothing wrong with leaving a negative balance on your account. Your credit score will not suffer as the result of a negative balance, and banks do not typically ding consumers for leaving negative balances on their credit cards. That said, leaving a negative balance does not help your credit, nor does it harm it because it's considered to be a $0 balance and your credit card will be paid as agreed.

Frequently Asked Questions (FAQs)

1. What happens if you overpay your credit card bill?

If you overpay your credit card bill, you will be left with a credit or negative balance on your credit card. Leaving a negative balance on your credit card has no impact on your credit score.

2. What happens when you get a refund on a credit card with no balance?

If you get a refund on a credit card with no balance, you are left with a credit or negative balance on your account. There is nothing wrong with leaving a negative balance on your account. It happens often to many people. In fact, once you begin using your credit card, the credit balance is applied to the charges you make.

3. How long can you carry a negative balance on a credit card?

You can carry a negative balance indefinitely. There is not limit on the amount of time that your negative balance can remain on your account. That said, if you leave your account with a negative balance for too long, your card issuer may make an effort to return the negative balance to you.

4. Will overpaying my credit card increase my credit limit?

No, overpaying your credit card will not increase your credit limit. Overpaying your credit card will leave a credit on your account but will not increase your credit limit. Your credit limit will remain the same.

5. How do I remove a negative balance on a credit card?

The quickest way to remove a negative balance from your credit card is to use your credit card. As soon as you use your credit card, the negative balance will be applied to your new charges.


What Happens When You Defer a Car Payment?

If you're like some Americans, making your car payment can be a difficult task, and so you might be exploring the option of deferring your car payment. Deferring a car payment means postponing it until a time when you can make the payment. So, what happens when you defer a car payment? We will discuss the answer to this question in much detail below.

What Happens When You Defer a Car Payment?

When you defer a car payment, your lender will essentially allow you to skip one to three payments in exchange for a fee. That said, you are still on the hook for the payments, but the deferred (skipped) payments are added to the end of your loan. For example, if you skip two payments, you will have two extra payments at the end of your loan. Also, after deferring payment, you will have to resume making your regular payments on your car loan.

Most lenders will allow you to defer one or two payments, while some will allow you to defer up to three payments. That said, regardless of how many payments you defer, you're not off the hook for those payments. In fact, you will have to make those payments as they will be pushed back to the end of your loan.

Usually your ability to defer a payment is usually written into your car loan agreement. Typically, to qualify for car payment deferral, you must make written request to your lender, explaining to them why you should qualify for a deferment, as well as agreeing to continue making timely payment after the deferment period ends.

That said, not all car loan lenders permit the practice of payment deferment and will require you to make your car payment regardless of whether you're facing economic hardship. To determine whether you're eligible for deferring a car payment, you should consult your car loan agreement as it will spell out whether you're eligible to defer your payments.

Additionally, some auto loan lenders will only allow you to defer your car payments if you have good credit. If your credit score has suffered a significant drop, some lenders will not permit you to defer your car payment. This is something that you should keep in mind if you're considering postponing your car payment.

Also, if the lender agrees to allow you to defer your car payment, they will likely ask you to enter into a forbearance agreement, which will usually spell out how long you can defer your payment, the fees and penalties that you will pay for deferment, as well as agreeing that you will continue making regular payments after the deferment period ends.

Again, if you eventually do decide to defer your payment, you should keep in mind that you're not off the hook for the payments. Instead, they will be added to the end of your loan and interest will begin accruing on them, which will cause you to pay significantly more in the long run for deferring your car payment.

How Often Can You Defer Your Car Payment?

To know how often you can defer your car payment, you should check your car loan agreement. If you're able to defer your car payment, you will likely find a clause in your contact laying out the terms of deferment, such terms will include how many months you can defer your payment, as well as the fees and penalties associated with payment deferment.

You will likely be able to access a copy of your car loan agreement by visiting the online portal where you make your car payments, or you can try contacting your lender and directly asking them about your options as they pertain to deferment of payments.

Many lenders will require that you're current on making your car payments before they agree to a deferment, while others will permit you to defer a payment regardless of your current payment status.

Should You Defer Your Car Payment?

Deferring a car payment is a good option for those who have experienced a short term setback, such as an illness, emergency expense, or temporary reduction in come that will subside within a short period of time. It's a good option if you know that you will be able to making regular payments on your car in one or two months.

Deferring a payment is not a good option for someone who wants a permanent solution. This is so because after the deferment period ends (1 to 3 months), you are required to continue making payments on your car. So, you should only use it for temporary emergencies that you know will subside within a short period of time.

For example, if you believe that you will not be able to continue making payments on your car, you should consider selling it and using the proceeds to pay off the loan on your car. If you have money left over after paying off your car, you should consider the option of buying a less expensive car with what's left.

Does Deferring a Car Payment Hurt Your Credit?

Deferring a car payment will not hurt your credit nor will it lower your credit score so long as you're exercising the option in your car loan agreement. This is so because when exercising your option to defer a car payment, you're essentially paying off the car loan account as agreed upon. The notation on your credit report will show that the account is being "paid as agreed."

As such, by deferring a car payment when exercising a contract option to do so, your credit report will not reflect delinquency because you're paying the account as originally agreed upon between you and your car loan lender. So, if you're experiencing a temporary hardship that's making it difficult for you to pay off your car loan, you should exercise your contractual right to defer your car payment.

How Many Car Payments Can You Defer?

The amount of car payments that you can defer will depend on how many payments your lender will allow you to defer. Usually, your contract will spell out how many car payments you can defer. So, check your car loan agreement to figure out how many car payments you can defer. Typically, auto loan lenders will allow you to defer 1, 2, or 3 car payments, but not more than this. Also, you should keep in mind that deferring your car payment does not mean that you will never have to pay back the money, your car payments will be added to the end of your loan, thus extending the term of repayment.

Alternatives to Deferring Your Car Payments

Refinance Your Car Loan

If you are having difficulty making your car payment, the first alternative you should explore is to refinance your car loan. Refinancing your car loan allows you to reduce your monthly car payment because you're taking out a loan on a smaller amount, thus reducing your car payment. That said, to be able to refinance your car, you must have good credit. If you've already missed payments on your car loan, it will be difficult to refinance your car. The drawback to refinancing your auto loan is that you will extend the repayment term of your car loan in return for lowering your monthly payment. That said, refinancing an auto loan and extending your repayment term is better than damaging your credit by failing to make timely payments on your auto loan.

Sell Your Car & Use Proceeds to Pay it Off

The second alternative you have is to sell your car and use the proceeds of the sale to pay off the car loan. That said, to be able to use this method, your car must be worth more than the amount of money that you owe your car lender. If you sell your and the sale amount is not sufficient to pay off your vehicle, you will have to come up with the money to cover the difference between the value of the car and the amount you owe on it.

Get Someone to Assume the Loan

The third option that you have is to find someone to assume or take over the loan on your vehicle. However, to be able to transfer the loan to someone else, your car loan agreement must allow this, many car loan agreements prohibit borrowers from transferring the loan to a third party. In the event that you're successful in getting someone else to assume the loan, the person assuming the loan must have a credit score that's good as yours and he will be liable for making the payments on the vehicle. In fact, the person assuming the loan will be issued a new loan under his or her own name.

Voluntarily Surrender Your Car

The last option that you have, and this is a painful one, is to voluntarily surrender your car. You only want to use this option if nothing else will work. When it comes to your credit and credit score, a voluntary surrender and an involuntary repossession will have the same negative impact on your credit. Voluntary surrender negatively impacts your credit score because it means that you're not paying off your car loan as agreed, which will have a significant negative impact on your credit. You should only choose this option if you've exhausted all of your other alternatives. If you have a short term money issue and you'll be able to continue making your car payment, you should explore the option of deferring your car payment before resorting to voluntarily surrendering your vehicle.

Frequently Asked Questions (FAQs)

1. Can you defer your car payment more than once?

The amount of times that you can defer your car payments depends on your car loan lender. To know how many deferred payments you qualify for, you should contact your car loan lender and ask them how many times you can defer your car payment. Usually, auto lenders will allow you to defer anywhere between 1 to 3 payments in exchanges for fees.

2. Does deferring a car payment hurt your credit score?

No, merely deferring your car payment will not hurt your credit score.

3. What does it mean to defer your car payment?

Deferring your car payments means that you will be allowed to skip making your car payments for 1 to 3 months. That said, you are still liable for making the payments, but they will be added to the end of your loan, meaning you're still liable for making them but at a later time.

4. How do I defer my car payment?

You can defer your car payment by contacting your car loan lender and asking them about deferring your car payment. Usually, they will send you and agreement that you need to sign and return, as well as pay a small fee to defer your car payment.


Credit Builder Loan vs Personal Loan (Explained)

If you're just starting to build your credit, you may have come across a product known as a credit builder loan. We will explain what a credit builder loan is as well as the difference between a credit builder loan vs a personal loan in much detail below.

Credit Builder Loan vs Personal

A credit builder loan is a loan that's designed to increase your credit score. With a regular personal loan, you apply for the loan and if you're approved, the lender will deposit funds directly into your account before you make a single payment. With a credit builder loan, the process is a little different because before you're given money, you must make installment payments to the lender (this includes payment of interest), and the payments are deposited into a savings account.

These payments are reported to the credit reporting bureaus, boosting your credit score. After you've completed making installed payments to the lender, your funds will be dispersed to you.

With a personal loan, on the other hand, you're given the money upfront after you're approved for the personal loan, and then you are responsible for paying back the money that you borrowed.

That said, not everyone who applies for a personal loan is approved for one, so for someone who wants to build credit but cannot get a personal loan, a credit builder loan is appropriate and will help you build credit.

Obtaining a credit builder loan is much easier than obtaining a personal loan because lenders are taking less of a risk since you're paying them the money that you want to borrow before they will lend it back to you.

How to Get a Personal Loan vs a Credit Builder Loan?

You can find personal loans at almost every bank there is in the United States. To get a personal loan you must have good credit because your lender will rely heavily on your creditworthiness. The better your credit score, the higher the loan amount you will qualify for and the better the interest on your loan.

For example, a person with a 760 credit score or higher may qualify for a $20,000 personal loan at 10% interest rate, while a person with a 680 credit score will only qualify for a $13,000 personal loan at an 18% interest rate. The lower your credit score, the more interest you will be paying. Although an 8% difference rate may not seem like much at first sight, it will make a big difference on the amount you will end up paying back.

That said, obtaining credit builders loans are not as readily available as are personal loans. To find a credit builder loan, you will usually have to visit a credit union or look for an online credit builder loan provider. That said, before you choose an online credit builder loan, you will benefit greatly from reading some of the reviews for the bank before applying for the loan.

Once you have found a credit builder loan provider, you will apply for a credit builder loan in the same way you would apply for a personal. That is, you will need to provide the following personal information to the lender: name, address, date of birth, social security number, employment status, and your bank account information.

If you're approved for the loan, you may have to pay a small fee for the lender to setup your loan. After that, you'll make payments on the loan, and after you've completed the payments, the funds will be dispersed to you.

On the other hand, when you apply for a personal loan, the funds are first dispersed to you, and after that, you begin making payments on the loan. That said, the application process for a credit builder loan is similar to that of a personal loan.

Process For Obtaining a Credit Builder Loan vs Personal Loan

We will explain the difference between the process for obtaining a personal loan vs obtaining a credit builder loan.

Credit Builder Loan

  • Submit an application for a credit builder loan
  • If approved, a savings account is opened by your bank
  • You make payments to your lender
  • Payments are deposited into a savings account
  • Your payments include the payment of interest
  • The lender reports the payments to the credit bureaus
  • Once you've finished making payments on your loan, you will receive the funds

Personal Loan

  • Submit an application for a personal loan
  • If approved, the funds will be deposited into an account of your choice
  • You make payments + interest to your lender
  • Once you've paid off the loan, your loan installment account is closed

Pros & Cons of Credit Builder Loans

Here are some of the advantages and disadvantages of credit builder loans:

Pros (Advantages)

  • Your are not required to have a good credit score
  • Low interest rates when compared to other personal loans
  • No hard inquiry when you apply for a credit builder loan
  • No security deposit to obtain a credit builder loan
  • Helps build good credit

Cons (Disadvantages)

  • Payments are reported to the credit bureaus, so if you miss payments, this will lower your credit score
  • Credit builder loans come with hefty fees
  • You will have to pay interest even though you're pre-paying the loan before funds are dispersed to you

Alternatives to Personal Loans and Credit Builder Loans

The best alternative to taking out a personal loan or credit-builder is to apply for and obtains a secured credit card. Security credit cards are great for someone who is just starting to build his credit or someone who wants to improve his bad credit.

Secured credit cards work the same way as do regular credit cards, the only difference is that to obtain a secured card, you must place a security deposit with the card issuer in order to obtain the card. Your security deposit usually determines your credit limit.

For example, if you pay a $700 security deposit, you will be given a credit card with a $700 credit limit. The card issuer will usually keep your security deposit for 12 months. The card issuer will periodically review your credit card account.

If the card issuer sees that you've been making your payments in full and on time, the card issuer may return your security deposit to you and convert your secured credit card into a regular unsecured credit card.

If the card issuer converts your credit card into a regular card, it will return your security deposit to you.

As far as how a secured credit card works, it work's exactly the same way as does a regular credit card. In fact, merchants and others will not know that you're using a secured credit card.

Also, a secured credit card will help your credit just as would a regular credit card. This is so because your payment history is reported to the credit reporting bureaus as your payments would be with a regular card.

So, if you need to build credit, you should strongly consider applying for a secured credit card instead of taking out a credit builder loan.

Credit Score Planet Frequently Asked Questions (FAQs)

1. Do you need good credit to get a credit builder loan?

No, you do not need to have good credit to get a credit builder loan. This is so because credit builder loans are designed for persons who have bad credit or are just starting to build their credit. Credit builder loans are different from personal loan where a person must have excellent credit to be approved for the loan.

2. Are credit builder loans good?

If you want to build good credit quickly, credit builder loans are a great way to do so. That said, you should consider opening a secured credit card as they are a great alternative to credit builder loans.

3. What is a credit builder loan?

With a credit builder loan, you will make payments to your lender, your lender will place the amount into a savings account, as you make payments, your payments are reported to the credit bureaus. Once you've finished making the payments, the loan provider will disperse the funds to you.

4. Can I get a credit builder loan if I have no credit?

Yes, you may be able to get a credit builder loan even if you do not have credit. This is so because credit builder loans are designed to assist consumers with building credit from scratch or rebuilding your bad credit.


Is There a Penalty For Paying Off a Personal Loan Early?

If you have some extra cash on hand, you might be thinking about paying off a personal loan that you have early. We will discuss whether it's good to pay off a personal loan early and whether there is a penalty for paying off your personal loan early in much detail below.

Is There a Penalty For Paying Off a Personal Loan Early?

Many personal loan providers place a penalty for paying off a personal loan early, the only way to know if you will be subject to a penalty for paying off your personal loan early is to consult your personal loan agreement. If there is a penalty it must be included in your agreement. All personal loans are different, so you should obtain a copy of the agreement by contacting your personal loan provider or by accessing it online.

Personal loan providers often charge penalties for paying off personal loans early so that they can obtain a portion of the interest that you would have paid prior to paying off your loan.

In some situations paying off a personal loan early may cost you more than paying it off according to your initially agreed upon schedule because of prepayment penalties imposed by some personal loan lenders.

So, to assess whether paying off a personal loan early is a good idea, you should consult your agreement and see if paying off the loan and paying the penalty is less than continuing to make payments on your loan.

If paying off the loan early will save you money on the long run, you should pay it off, however, if you will end up paying more to pay off your loan early, you should just set the money aside and continue making payments on your personal loan until you've paid it off.

That said, some personal loan lenders do not charge penalties for paying off a personal loan early. In such a situation, it makes financial sense to pay off your loan early because you will save money by not paying additional interest on the money that you've borrowed.

What is a Prepayment Penalty Fee?

A prepayment penalty fee is a fee that some personal loan lenders charge their borrowers for paying off their personal loans early. This is done by lenders to gain some of the interest that you would have paid had you paid off the loan regularly.

Charging a prepayment penalty for paying off a loan early makes sense from the perspective of a personal loan lender because they make their money through the interest that they charge for lending you money.

Can You Pay Off Your Personal Loan Early?

Yes, usually with any type of personal loan, you have the option of paying off your personal loan early, the only thing you have to pay attention to is whether you are required to pay a pre-payment penalty also known as early personal loan pay off penalty. Some lenders do not require the payment of a penalty while others do require the payment of a penalty. So, to know whether it makes sense to pay off your loan early, you should consult your personal loan agreement to see whether you have any prepayment penalty fees.

How Much is the Penalty For Paying Off Your Personal Loan Early?

The amount of the penalty or fee for paying off a personal loan is different from one lender to another. Some lenders may base your early payoff fee as a percentage of your remaining balance and others may base the penalty on the remaining interest for your loan. Lenders do this because they make money on personal loans through the interest they charge and when you pay off a loan early you're depriving them of that interest.

Regardless of how your personal loan lender calculates your early payoff fee, you should contact them and ask them to send you a copy of your loan agreement. Your agreement should spell out the terms of your early payoff. Some agreements don't have this clause while others do.

How to Avoid Paying a Penalty for Paying Off a Personal Loan Early?

The first option that you have to avoid paying a penalty for paying off a personal loan early is to take out a personal loan without a pre-payment penalty. This may seem obvious but people rarely look at their personal loan agreement to determine whether they can pay off their loan early and whether they'll have to pay a penalty. So, if you're thinking about taking out a personal loan that you may want to pay off early, ask your lender or consult your agreement to determine whether a prepayment fee applies.

If you already have a person loan that you want to pay off early, you should contact your lender and ask them about your options. Your lender may waive the entire fee or a portion of it. That said, if they refuse to waive your fee, you should assess whether the amount of interest you'll save by paying off your loan early exceeds the prepayment fee, if it does, it will be worth it for you to pay off the loan early.

The third option you have to pay off your loan early is to make bi-weekly payments on your. Doing this will you to pay off your loan within 1/2 of the time. This is a great option for someone who gets paid on a bi-weekly basis and wants to pay off his or her personal loan.

Will Paying Off Your Personal Loan Early Improve Your Credit Score?

People often believe that paying off their personal loans will immediately boost their credit score, however, the reality is that paying off a personal loan early or on time will result in a small drop in your credit score.

A slight point decrease is possible because when you pay off a personal loan, you're effectively closing down an installment account. Closing down and installment account reduces the diversity of your accounts, which tends to cause a small drop in your credit score.

That said, so long as you've made all of your payments on your personal loan accounts, rest assured that your credit score will improve within a few months of paying off your personal loan.

That said, paying off your personal early is a good idea if you're able to do so because it will save you on interest and reduce the amount of outstanding debt that you have. So, the minor drop in your credit score is just that, a minor drop, your credit score will recover fairly quickly so long as you've made your payments on time.

Credit Score Planet Frequently Asked Questions (FAQs)

Some states have outlawed penalties imposed on consumers who pay off their personal loans early. However, banks are regulated by Federal Laws and federal laws still permit the practice. So, if you are unsure as to whether you're liable for an early payment penalty, you should consult your personal loan agreement.

2. Is it bad to pay off a personal loan early?

If you have cash, it may be a good idea for you to pay off your personal loan early because you will end up paying less interest and you're reducing your debt, which is always a great thing.

3. What happens when you pay off a personal loan early?

When you pay off your personal loan, you're essentially closing down an installment account and are therefore reducing the diversity of your credit accounts. closing down an account can cause a temporary and small drop in your credit score. However, if you have made all of your personal loan payments on time, your credit score will recover fairly quickly.

4. Will I have to pay a fee for paying off my personal loan early?

Some personal loan lenders charge a fee or penalty for paying off your loan early. That said, to know whether you will be charged a penalty for an early pay off, you should look at your personal loan agreement.