It’s no secret unemployment can have serious consequences for your financial health. If you’re in the process of obtaining a loan or you’re already making payments on one, what should you do if you lose your job? Here are some answers to help you feel more informed in the midst of a difficult situation:
Will my current loan terms be affected?
Are you currently making payments on a mortgage, car loan, student loan, credit card, or any other type of loan? The interest rate, monthly payment amount, and other loan terms won’t automatically change because you lose your job. Your responsibility to make timely payments will remain the same — but so will the lender’s responsibility to hold up its end of the deal. You could face penalties for missing payments, but you can’t be penalized or have your loan terms changed simply for losing your job. If you’re forced to make tough decisions about which payments to make, U.S. News & World Report contributor Bob Musinski warns paying secured debts like vehicles and mortgage loans should come first, as creditors could repossess your vehicle or foreclose on your home if you get too far behind.
What kinds of assistance are available?
If you lose your job and there’s any chance at all you’ll have difficulty making loan payments, it’s vital to establish clear and frequent communication with your lender. In many cases, help may be available to get you through this challenging time. For example, Investopedia contributor Greg Daugherty notes some mortgage lenders offer loan forbearance programs, which allow you to skip or reduce payments, or loan modifications, which adjust the terms so payments are more affordable and you can avoid foreclosure. You may also be able to obtain relief for car payments or private student loans.
What if I’m currently applying for a loan?
If you lose your job during the loan application process — especially if you’re purchasing a home — it’s important to assess the situation carefully. In some cases, CNBC contributor Erica Lamberg notes you may be able to go ahead with your application and purchase if you have other income streams or a co-signer who will guarantee that you can meet your loan obligations. In other cases, you may need to settle for a smaller loan or delay your purchase until you’ve found new employment and your finances have stabilized. No matter which solution makes the most sense, you’ll need to update the lender on your job loss — misrepresenting your income on loan papers could open you up to fraud charges.
Should I apply for a loan after a job loss?
Should you begin the loan application process if you’ve recently lost your job? The answer will depend on your specific situation and the type of loan you’re seeking. Even if you find a lender willing to work with you, only move forward after considering the big picture. Will this new loan force you to tap into retirement savings, cause you to struggle with basic living expenses, or put you at risk for a credit-ruining default? If so, it may be wise to hold off.
As you navigate the stress and uncertainty of a job loss, be sure to prioritize clear, prompt communication and careful planning — these steps will serve you well as you decide how to handle outstanding loan applications and monthly payment obligations.