Late Payments vs Default?

gazfocus

My wife has a loan that she’s fallen behind with and we are trying to work out the best way forward. Circumstances towards the end of last year caused her to fall 3 months behind on her repayments but as things have improved since, she’s now making her contractual payments again, plus a little extra to chip away at the arrears. 

The lender has been really good at supporting her so far but has said that if the loan falls 4 months into arrears, it will default. 

The issue that’s brought this question up is that each month, she is still ‘in arrears’ so she gets an extra late payment marker on her credit report. It’s going to take a few months to catch up with the repayments so that could significantly damage her credit report. 

As our fixed rate mortgage ends in April 2027, we want the best chance possible of being able to shop around for a new mortgage so I’m concerned that loads of consecutive late payment markers are going to cause issues down the line. 

So, I was wondering whether we would be in a better position if she let the loan default this month, therefore putting an end to the continuous negative reporting or would that look worse than a few extra late payment markers?

Either way the loan will be fully repaid by the end of this year, but want to try and reduce the impact as much as we can.  

Brie

A default is going to be on the record for 6 years I believe.  Late payments will also be on there for 6 years but the fact that it is repaid in full will be a good thing.  The credit histories that I see have a traffic light system on them.  There's the nice green things when there's never a payment missed.  There's the yellow when some payments fall behind but there's still a record of some payments being made.  And then there are the red ones where payment have stopped completely, no effort is being made towards paying until perhaps some desperate happens.  Her defaulting sounds like the last situation.

If a bank is looking at her credit history they will see that she continued to make payments and honoured the credit agreement she entered in to.  They will see that the overall balance is being chipped away at until the final payment is made.  They will see that there was a blip but she worked to overcome this.  

If she defaults no payments are being made the history just shows the angry red and until somehow she comes up with the money to pay it all.  If I was a bank I wouldn't be impressed.  

gazfocus

I appreciate your input. I hadn’t thought of the bank looking at/seeing continued payments. That’s a valid point. 

If anyone else has any thoughts I’d love to hear them