Paying back your loan

You will usually start paying back what you owe shortly after the loan arrives in your bank account.

  • If you have a fixed rate loan, your payments will be the same every month

  • If you have a variable rate loan, your payments may change if the interest rate changes

How are payments taken?

You can usually choose how to make your loan payments when you apply for your loan, although some lenders may only offer one option. Common ways include:

  • Direct debits

  • Continuous payment authority from a debit or credit card

  • Standing order

If you can pick, direct debits could be a good choice because you get extra guarantees and it is the responsibility of the lender to take payment.

Can you take a break from payments?

Some lenders offer a short repayment holiday to give you some extra time, normally between one and three months, at the start of the loan before you loan payments kick in.

While this gives you a little more time to pay back your loan it also makes it more expensive, so check the cost before you decide.

Some lenders offer payment holidays, or deferred payments, during a loan as well, but this is done at their discretion and again will cost more.

Can you cancel your loan?

Yes, you have 14 days from the date you sign the loan agreement, or receive a copy in the post (whichever is later) to cancel your loan - this is the cooling off period.

If you cancel, you still need to pay back the loan and any interest due for the time you borrowed the money within 30 days.

Making changes to your loan

Even after your loan is up and running you may need to make changes if your circumstances change.

Updating your details

If your details change you should let your lender know, this includes:

  • If you move home

  • If your contact details change, like your phone number

  • If your employment status changes

  • If your name changes

The easiest way to do this is to give your lender a call to check how they update their records.

Extending your loan term

If you need more time to pay back your loan you could contact your lender to see if they will extend your loan term.

This could make your monthly payments smaller and easier to manage but in the long run it will cost you more to pay your loan back and there may be a fee to pay.

Increasing your loan

In most cases you cannot increase the amount of your loan mid term, instead you will need to either:

  1. Apply for a second loan to run alongside your existing loan

  2. Apply for a larger loan to pay off your existing loan and give you the money you need

If you apply to borrow more money this will be treated as a separate application and the lender will check you can afford the loan and your credit record as part of the process.

Paying off your loan early

If you want to pay off your loan early in full, you should ask your lender for an early settlement amount for your loan, which shows:

  • Your outstanding loan balance

  • Any interest being deducted

  • Any early repayment charges

  • The final settlement amount

Your settlement amount is only valid for a set amount of time. This has to be for at least 28 days but may sometimes be longer, and should contain details of how to pay off your loan.

If you want to pay off part of your loan, you can ask for a partial early settlement by detailing how much you want to pay off.

Are there fees to pay?

Yes, lenders can charge up to 58 days' interest to cover their losses if you choose to repay your loan early in full.

Your lender cannot charge any extra fees if your loan is unsecured and less than 8,000.

If your loan is over 8,000 then the most you can be charged is 1%, or 0.5% of the entire amount repaid.

If you have a secured loan, then the lender can charge more, so check exactly what you will have to pay before paying your secured loan back early.

What if something goes wrong?

Hopefully you will have no issues managing your loan but it is good to know what to do if something does not go to plan.

You cannot pay your loan back

You will normally be charged a late or missed payment fee of around 30.

The lender will also report the missed payment to credit reference agencies, so it will damage your credit report.

Here is what you should do if you think you will be unable to pay back your loan.

You emigrate to another country

Your loan will not be written off and you will still be expected to continue to make the agreed payments on time.

If you leave the UK to live somewhere else and stop paying your loan, the lender will still report your missed payments to UK credit reference agencies. They may also hire a debt collection agency in the country you now live in to pursue the debt.

If you take out a loan knowing you are set to emigrate and stop paying it, the lender could also pursue you for fraud.

If you plan to emigrate overseas speak to your lender as early as possible. They may be able to offer some flexibility or even transfer the loan to a branch in your new country.

You go to prison

If you are due to go to jail you should contact your lender and let them know.

Payments do not stop automatically but you can ask your lender for a payment break until you are released. It is up to them whether to agree to this and they may still charge you during this time.

You could also appoint someone, normally a family member, to manage your loan while you are in prison, this person will then be able to look after the loan for you until you are released.

You die

If you pass away the outstanding loan balance is taken out of the value of your estate.

Your debts are paid before any money is passed to your heirs and in a priority order, starting with:

  1. Secured debts, like your mortgage or secured loans

  2. Funeral costs

  3. Unsecured debts, like personal loans

If there is not enough money in your estate to pay off your loans then it will be wiped unless:

  • It is a joint loan, where the outstanding balance will be owed by the surviving person

  • It is a secured loan, where the lender will reclaim the money by selling the asset

  • It is a guarantor loan, where the lender will ask the guarantor to pay the loan back

Managing your loan FAQs

Q

Can someone else pay off my loan?

A

Yes, anyone can choose to pay off your loan on your behalf. The just need to contact your lender and have your loan account number to pay it off.

Q

How can I find out how much I still owe?

A

Contact your lender to get an up to date loan balance. If you want to pay this balance off, you should ask for an early settlement amount.

Q

Can I pay off a loan with another loan?

A

Yes and some loans are specifically designed to do just that, they are called debt consolidation loans.