What happens if you cannot repay?
We appreciate that circumstances can change and you may not be able to make repayment. This might be because you haven’t been paid by work yet or an emergency has occurred leaving you short of funds for that month. However, not being able to repay your loan could lead to charges being incurred and significantly increasing the cost of the loan. To avoid this, the lenders we feature will typically send you a text message and email on the days leading up to each instalment to give you good time get your finances ready for collection. In addition, if you know that you are unable to repay a loan, the lender should be able to offer forbearance and be able to help you reduce the cost of your loan or repay at a later date. Below we explain the various options and outcomes if you cannot repay your loan.
Secured loans could lead to repossession of collateral
Since a secured loan involves putting down something as collateral like your car or house, you risk losing this if you fail to meet repayment. The ‘bill of sale’ that is agreed during the application stage confirms the lender can repossess your goods if payment is not made. The lender will always contact you first by email, phone and post and try to come to an arrangement before repossessing your items.
Default fees and charges
The lenders we feature charge a default fee of up to £15 for a late repayment. The fee will not be applicable if the customer repays later on the day of collection. In addition to the default fee, the lender will typically charge a daily interest rate of around 0.8% per day for each day the loan has not been repaid. You will always receive reminders by email or phone explaining the extra costs involved but it is always advisable to pay on time or contact the lender if you know that you are unable to repay.
Pay plan or arrangement
If you contact the lender and explain your circumstances, they may be able to offer you a pay plan or arrangement on the current terms of your loan. A pay plan involves paying lower amounts over a longer period of time and this should make the loan easier to repay. However, the option of having a pay plan available should not encourage you to take out a loan if you know in advance that you cannot repay. Being in an arrangement may still be reflected on your credit score because it indicates that you failed to keep up with repayments.
Negative impact to your credit score
Failing to repay will have a negative impact on your credit score. This means that other lenders that run a credit check on your account will see that you have not made a payment in the past and therefore it might make it harder to obtain credit in the future. In contrast, repaying your loan on time may improve your credit score and make it easier to access finance in the future.
Rollovers and extensions
Some of the lenders we feature may be able to offer rollovers or extensions on your loan. This will increase the length of the loan but you will be charged extra interest making the loan more costly. Rollovers have been limited to two per customer per loan in order to reduce the overall cost.
Things to avoid
If you are unable to repay your loan, there are responsible ways you can reduce cost and the impact to your credit score. Customers are advised not to take out new loans in order to repay their outstanding loans because this prolongs the repayment and may lead to a spiral of debt. In addition, borrowers are encouraged to communicate actively with the lenders and to respond to phone calls and emails. The lender may be able to offer flexibility if you explain your financial situation and this may reduce the cost of your loan.
Before you apply for your loan with one of our lenders, it is important to consider how you plan to repay your loan. The loans we feature are intended for emergency expenses and borrowers should consider how they plan to repay the loan and interest before they apply. For help, go to moneyadviceservice.org.uk