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 repay your loans and the steps you can take.
To default on a loan means your creditor judges you to have broken the 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.
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 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.
Once you have defaulted, your creditor will ask you to repay the full amount of debt instead of paying the monthly instalments you had previously agreed. 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 collection agency, bringing it to court, or asking the court to take back the goods.
A debt consolidation loan is when 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:
Lenders are obligated to report late or missed payments when repaying a loan. 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.
Find out which loans you could be eligible to take out, without affecting your credit score