Loan expiration or maturity date is the date when a borrower’s final payment for a loan is due. Once it has been made and all the terms about repayment have been met, the promissory note is retired. If you’re wondering what a promissory note is, it’s a record of your original debt.
Once your loan is secured, the lender will not be able to claim any of your assets. However, there can be changes in the loan expiration dates or other terms related to payment due to renegotiation for example.
Generally speaking, it’s better to pay a loan off on the maturity date instead of before or after it. Paying too early or too late can come with penalties you may not have anticipated.
What happens when your loan goes out of term?
Going “out of term” refers to a situation where, as a borrower, your loan terms have come to an end. However, if you have not repaid the amount of the principal loan, you could be in deep waters. Sometimes, going out of term is also called “in breach”.
What causes it?
The situation can occur due to many reasons, including when you’re unable to sell or refinance a property that you took a loan for. Even though it’s temporary if you have a legitimate reason, at other times, it can take you by surprise.
What is a mortgage?
In simple words, a mortgage is a loan you take either to purchase or maintain a form of real estate and commit to paying back in a certain amount of time.
It is generally recommended to pay your mortgage through regular and consistent payments to avoid additional fees or penalties. The property acts as a form of collateral for your loan.
What happens if you miss your mortgage payments?
Falling behind on payments means your current lender will try to take steps to collect payments from you. You may receive reminder letters and phone calls but eventually, your lender will be left with no choice but to initiate a foreclosure.
A foreclosure can cause a significant amount of stress to homeowners to the extent that it affects their physical as well as mental well-being. But the good news is, no bank can start the process right away. It typically takes a good amount of time before they consider foreclosure as there are several steps on the way.
The biggest consequence of falling behind your mortgage payments is that it affects your credit score. For instance, if you haven’t paid for 30 days or more, your lender will report it to the credit bureaus such as Experian, TransUnion, etc.
As a result, the credit reporting agencies then put all the delinquencies on the credit report. If you keep missing payments, the impact on your score will become apparent over time.
What can you do when the maturity date is approaching?
Regardless of the type of loan you have taken, it’s important to have a plan in place. Here are the four things you can do when your loan maturity date is approaching.
Pay it off
The ideal loan maturity situation is when your final payment only consists of the remaining balance on your loan. If you become victim to a balloon payment (a case where the amortization period goes beyond the loan maturity so the loan does not completely amortize during the term), your final payment may turn out to be much higher than what you were previously paying every month. Balloon loans often depend on the sale of an asset, or commercial real estate to be more specific.
In case you’re unable to make the final payment (for a legitimate reason), you can consider taking an extension. One option you can go for is a short-term extension.
Sometimes a lender can also write an extension for you and save you from the hassle of dealing with maturity problems. Therefore temporary extensions can work well in your favor.
Renewing a loan refers to taking another loan once the previous one matures with all the payments made. Sometimes, renewing a loan can work in your favor, especially if you’re running a small business.
This is because, once you’ve created a rapport with your lender, it’s easier to take another loan out. To add more, renewing a loan may lead to a lower interest rate than what you had previously. Once a certain amount of trust is there between a borrower and a lender, then it becomes easier to get even a bigger loan out.
Refinancing a loan is very much an option if your current loan is not fulfilling your needs. Your loan terms must match your growth needs and most importantly the cash generation of your business. It’s also a feasible option to avoid large payments at the end in case of a balloon loan.
What happens if you still owe balance on your loan?
In the case of an automobile loan, the worst that could happen is either your vehicle will be taken away or repossessed. Additionally, if you miss out on a payment during an existing loan period, the bank may add a fee to your loan balance.
If there’s outstanding balance due to skipping a payment, for instance, your due date can be extended to the next month. As a consequence, it may increase the amount from skipped payments and the interest rate may keep accumulating till you reach your last payment.
On the exact maturity date, if you still owe a balance, it’s imperative to pay it off. While it is possible to negotiate with some banks to allow you to pay in installments, most of them will ask for the entire payment at once.
Therefore, to avoid any additional financial charges you must make your payments consistently. In case of non-payment, make the bank or any other relevant institution aware of your circumstances immediately. This way they will be able to keep the credit bureaus in the loop even after the maturity date.
Impact of non-payment on vehicles
In case of non-payment of an auto loan, the bank can repossess your vehicle if they notice that you’re becoming delinquent on payments.
Even though banks try to avoid such circumstances, it becomes inevitable to do it, given that the collateral value is high enough to cover your loan as well as the repossession costs.
However, banks make it a point to notify you in time if they are considering repossession. They will also give you an ample amount of time to pay your dues before putting your vehicle up for auction.
The bottom line is that maturity dates are extremely crucial to consider when you’re taking a loan and paying it off over some time. Therefore, we always recommend doing your research and getting information from fellow borrowers before leaping.
At this point, the impact of loan non-payment is self-explanatory whether you’re falling behind a mortgage, auto loan, or any other personal loan payment.
However, on top of skipping payments, if you also put your head in the sand, it will only make matters worse. Not only will it have an impact on your credit score history but it may also hamper your ability to get a loan in the years to come.
As soon as you realize that your financial situation has come to the point where you have no choice but to miss payments, it’s a sign that you need to explore your options immediately.
For further support, try to contact a loan servicer to find alternatives. Moreover, you can also learn more about your situation if you consider speaking to an experienced attorney for professional advice.