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What happens if I’m unable to repay my loan?

What happens if I’m unable to repay my loan?

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Last updated: 23 August 2021

If you are unable to pay back your loan you may be charged a fee, damage your credit record, or be charged with a county court judgement (CCJ). Because of this, it is important before you take one out to compare loans in order to see which one would be the most suited for you. However, if it does happen there is help out there and it is important to know the options available to you. This guide will take you through what happens when you can't make your loan repayments on time and the steps you can take.

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What is defaulting?

To default on a loan means your creditor judges you to have broken the repayment terms of the credit agreement and they do not believe there is any way to get back on track. After this happens the first time, the creditor may begin action to retrieve the money. Crucially, if you took out a loan that is regulated by the Consumer Credit Act, you must get a default notice warning before they can begin to try and retrieve the money.

What is a default notice?

If over the course of 3 to 6 months you have failed to pay the full amount each month or have missed a payment, you will receive a default notice. Generally, if this is just the first time then you will get a letter from the provider stating you need to make up for the loan payment that you missed, and that you make further payments on time. Depending on your creditor, it should give you at least two weeks to catch up with any missed payments.

What happens after you default?

Once you have defaulted, your creditor will ask you to repay the full amount of debt instead of making the monthly repayments you had previously agreed to. You can offer to pay in instalments, but they do not necessarily have to agree to this, and it is therefore important to contact them quickly to find out what your options are. They can also begin to take outside action to retrieve the money such as passing it on to a debt collection agency, bringing it to court, or asking the court to take back the goods.

What are debt consolidation loans?

A debt consolidation loan is a type of debt management plan where you move all of your borrowing from various different loans and merge them into one personal loan through a single monthly payment. It can be used for either credit cards, store cards, or personal loans. Therefore, instead of making lots of separate payments, you will only have to pay the provider of your consolidation loan. However, it is imperative to make sure this makes your payments more affordable and your debts cheaper. Take some time to consider some of the advantages and disadvantages listed below:


  • All of your debt will be one place, and it will therefore be easier to keep track of, making just one payment a month.
  • You have the opportunity to rebuild your credit rating once they see you are taking responsibility of your finances.


  • There is the possibility of paying a higher interest rate.
  • Some lenders will have early repayment penalties, charging you if you want to pay off the loan before its term.
  • Because it is a long-term loan, you could end up paying more on the interest.

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How do missed payments affect your credit score?

Loan providers are obligated to report any missed or late payments. There is no set amount of damage it can do to your credit score. This is because your credit record shows the history of all of your borrowing. Therefore, it is important to recognise and deal with it early before too much damage has been done. If you default on your loan, it will appear in your credit file for six years, even if you repay the debt in full. However, after six years the defaulted debt will be removed even if you haven't repaid it in full. The key thing to remember here is that a default doesn't last forever and it will not define your financial future, especially as time passes. Also, when you compare loans from different lenders, you will find that some are less interested in your defaults than others.


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Fergus Cole

Author: Fergus Cole

Fergus is a journalist specialising in the personal finance, energy and broadband sectors. He also has a passion for travel and adventure so tries to make the most of this in any spare time he gets.

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