What happens if you miss a payment?

You are normally charged a fee; how much depends on the type of loan you have but it is usually around 25.

You also have to pay more interest because you will owe money for longer.

If after missing a payment you get back on track that may be all the action you face.

If you continue to miss payments, the lender could:

  • Continue to charge you extra fees and interest

  • Report your missed payments to credit reference agencies

  • Instruct debt collectors to try and get you to pay what you owe

  • Get a county court judgement (CCJ) to require you to pay

  • If you have a secured loan, start proceedings to sell your security to get their money back

Does it damage your credit record?

Yes, because lenders are obligated to report late or missed payments.

If you miss several payments then the lender may add a notice to your credit report, they include:

  • Default notices

  • CCJs

  • Individual Voluntary Arrangements (IVAs)

  • Bankruptcy

How much damage depends on how long it takes you to get back on track because your credit record shows your repayment history for all your borrowing.

What is a default notice?

It is a letter from your lender that is usually sent after you have missed between three and six payments.

It sets out the details of your loan, what terms you have broken and what you need to do next.

A default notice is also added to your credit report, which can make it harder to borrow money in the future.

What is a CCJ?

It is a type of court order that can be filed against you if you owe money.

Unless you pay back your CCJ within 30 days it will be added to your credit report and stay there for six years.

Having a CCJ causes significant damage to your credit record and could make it much more expensive or stop you from borrowing money in the future.

CCJs only apply in England, Wales and Northern Ireland. In Scotland the courts use a process called enforcing a debt by due diligence.

IVAs and bankruptcy

These are both decisions you could make if your debts are causing significant problems.

They may offer some relief from your debts by fixing affordable monthly payments or wiping some or all of your debts.

However, both have a serious impact on your credit record so you should get professional advice before considering them.

Could you lose your belongings?

Yes, but how likely this is depends on the type of loan you have:

  • If you have a secured loan, like a homeowner or logbook loan, the lender can take possession and sell the security, if the security is your home then they will need a court order to do this.

  • If you have an unsecured loan, like a personal loan it is much harder for the lender to force you to sell but they can try to apply for a charging order and get the loan added to your property through the courts - although this would always be a last resort.

Can they force someone else to pay for me?

No, if you took out a loan in your name only then you alone are responsible for paying the loan, the lender cannot force your family or friends to do so.

However, there are some exceptions where someone else could be made to pay:

  • Guarantor loans: If you miss just one payment then the lender can make your named guarantor pay for you.

  • Joint loans: If you have taken out a joint loan with someone else, they are equally liable for the loan payments.

What can you do?

Speak to your lender

If you think you will miss a loan payment then contact your lender as soon as possible.

  • If you think it is a short term issue, they may give you extra time to make your loan payment and hold off reporting the missed payment to credit reference agencies.

  • If you think it is a longer term problem, contact them to ask for some breathing space while you get independent help to work out how to handle your debts.

Prioritise your debts

If you are struggling to pay all your bills you should prioritise them as:

  1. 1.

    Priority debts these should be paid first because they have serious consequences if you do not pay them. For example, losing your home, having your heating cut off or being summoned to court.

  2. 2.

    Non priority debts these debts should be paid after priority debts because they have less direct serious consequences. Although, the lender could still get a court order if you fail to pay them.

Are loans a priority debt? Some are, normally if they are secured against your home, but most personal loans are non priority debts.

Consider debt consolidation

If you have several types of debt, you could save money by borrowing money to cover them all in one, this is called debt consolidation.

Sometimes consolidating your debts can make your borrowing more affordable and save you money on interest, but it is not always the best solution.

You should only consolidate your debts if:

  • It makes your payments affordable

  • It makes your debts cheaper

Here is how to work out if consolidating your debts is right for you and a run down of the pros and cons.

What help is out there?

There are several national debt charities that may be able to help, including:

These charities offer free help if you are struggling to manage your loan payments, and can give guidance on how to deal with your finances.

Should you pay for debt advice?

Lots of companies offer debt advice, and while they can offer a useful service many charge fees that are added to your debts.

These fees are normally charged when you take out a formal debt management plan, but there are charities and companies that offer this service for free, including: