When you lend money to a borrower, the expectation is for your client to pay in installments until the principal and interest are paid back in full. And with many borrowers, that is the exact case. However, it’s possible to have borrowers who do not make their payments by the specified dates, requiring you to navigate the frustrating world of loan delinquency.
What Is a Delinquent Loan?
A delinquent loan refers to a situation where the borrower has failed to make one or more scheduled payments on a loan. When a borrower becomes delinquent on a loan, it typically triggers a series of events, depending on the terms of the loan agreement and the policies of the lender. These events may include:
- Late fees
- Penalties
- Negative impacts on the borrower’s credit score
- Potential actions by the lender to recover the overdue amounts, such as contacting the borrower for payment or initiating collection proceedings.
In general, a delinquent loan is fairly easy to address and take care of—all your borrower has to do is pay the overdue amount and include any late payment fees or charges incurred. However, no lender wants to have to wait on a late-paying borrower to make their payments.
5 Tips to Avoid Delinquent Loans and Encourage Borrowers to Pay on Time
To help decrease the number of delinquent loans at your company, take a look at these tips you can begin initiating to get your borrowers to pay on time:
Tip #1: Send Reminders
If you’ve ever taken out a loan, you probably know that making your payments isn’t always at the forefront of your mind all month. The same goes for your borrowers. Juggling work, family, and so many other things can cause borrowers to forget about upcoming due dates.
So, in addition to sending a monthly statement, send a reminder a few days before the scheduled due date. Should they miss their payment, send a notice of a missed payment, as well.
Tip #2: Reach Your Borrowers in All the Ways You Can
Sending a reminder or late payment notice in the mail could result in the envelope getting lost in the mail, being tossed into the trash, getting ripped up by the family dog, and more. If you have the technology, reach your borrowers by text, email, and automated phone calls, too. However, you can contact your borrowers, take advantage and do it. The more they hear from you, the more likely they are to remember to make those payments.
Tip #3: Inform Your Borrowers of Late Fees
If there are little to no consequences to being late with a payment, borrowers are more inclined to become lax on making their payments by the due date. However, if they are aware that there will be late fees for any missed payments, you can expect more borrowers to pay on time rather than incur extra charges.
Make it clear to new borrowers of your late fee policy. Should they still miss a payment, hopefully having to pay extra just for being late is enough of an incentive to discourage it from happening again.
Tip #4: Offer Various Ways to Pay
With the right technology, it can be easier than ever to submit payments quickly and on time. If you are only allowing customers to pay via a check sent in the mail, you are missing the opportunity to receive payments even faster and more efficiently over the phone, online, though credit or debit cards, or other possible options. Whatever your current payment system allows, be sure you are implementing all possible options for the ease and convenience of your borrowers.
Tip #5: Consider How You Communicate With Borrowers
In all your communication with your borrowers, it’s important to remember to be clear and firm, but also polite. No one wants to receive harsh messaging about payment dates and consequences should a borrower miss a payment. And sending rude, frustrated messages to delinquent borrowers about late or missing payments is far less effective than sending polite messages that clearly state the issue, offer various payment options, and provide to-the-point messaging that informs them what the next steps are should payments continue to be missed.
Plus, the shorter and more to-the-point, the better. Borrowers are not going to read through a ton of content to dig out the core messages you’re trying to relay. Keep your communication short, sweet, clear, and accurate.
absVision is your solution for helping reduce delinquent loans!
absVision, robust loan origination and management software from Allied Business Systems, offers the solutions you need to help reduce or avoid loan delinquency among your borrowers. In addition to all the origination features and capabilities, our technology can automate messaging, accept various payments, and provide other solutions to manage the loan until it is paid off.
Learn about all the ways absVision can serve your team and borrowers by speaking with an ABS expert today: 800-727-7534
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