NEW YORK CITY, NY / ACCESS Newswire / September 24, 2025 / When a person doesn't have enough money to cover their needs, a personal loan could be a temporary solution. However, loans come with some risk. To start, a personal loan needs to be repaid on time. Installment payments are due every month and should be made on time to avoid the possibility of a loan default.

This article will explain how borrowers can avoid personal loan default and protect their financial well-being.

What is loan default?

A loan default happens when an individual cannot make their monthly installment payments. The lender treats this as a breach of contract. This may happen after as little as one missed payment or after several missed payments, depending on the lender and loan terms. It's important to keep in mind that each late or missed payment is reported to the credit bureaus, and will lower the individual's credit score. Once the lender declares the loan is in default, this may reduce the individual's credit score even more.

Step 1: Plan carefully

One key to success with a personal loan is to plan carefully before and after the loan is approved. Pre-approval planning involves creating a budget and determining how much money is needed. Applicants shouldn't borrow more than they need to help ensure they can afford the monthly installment payments.

Once the loan is approved and the applicant receives the funds, they should set up automated payments to avoid missing due dates.

Step 2: Respond quickly to challenges

If the borrower's financial situation changes and they can't make payments as promised, they need to take action immediately. The first step is to reexamine their budget and look for areas to cut to ensure loan payments will continue despite the setback. Examples of this include:

• Spending less on fast food and dining out

• Reducing streaming subscriptions

• Lowering expensive phone bills

It's also important for struggling borrowers to contact their lender right away. Some may think contacting their lender when their financial situation changes is a last resort to avoid loan default. This is not true. The lender may be able to offer options like refinancing the loan with lower monthly payments or deferring current installment payments to the end of the loan term. Contacting the lender proactively can help borrowers understand what their options are upfront.

Step 3: Find alternatives to avoid default

There may be other options available if a borrower is unable to work out an alternative arrangement with their lender, including the following:

• Balance transfer: This option involves using a low-interest or no-interest credit card balance transfer offer to pay off the debt. A limited-time promotional or introductory balance transfer offer could help the borrower by lowering the overall monthly cost of debt payments. However, the benefit of lower interest only lasts as long as the offer period. Once the offer period expires, the interest rate will rise to the card's standard rate. It's important to note that these offers come with transfer fees, and not all credit card balance transfer offers will allow cardholders to pay off personal loans.

The bottom line

Avoiding personal loan default is a process that should start before the applicant submits the loan application. Prospective borrowers should plan carefully by reviewing their budget and borrowing only what they need. Automating the monthly payment once funds are received can help prevent late or missed payments. Contacting the lender as soon as finances get tight could provide additional repayment options. Debt consolidation is also an option.

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OneMain Financial is the leader in offering nonprime customers responsible access to credit and is dedicated to improving the financial well-being of hardworking Americans.

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Sonakshi Murze
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sonakshi.murze@iquanti.com

SOURCE: OneMain Financial