What are the Risks if you cannot Repay a Loan?

What are the Risks if you cannot Repay a Loan?


When you apply to take out a loan, lenders will carry out various checks to ensure that you should be able to afford to pay your loan back. For those looking to borrow money, the golden rule of thumb is never to borrow more than you can comfortably afford to repay.

The Financial Conduct Authority (FCA) have said that “most borrowers” can still comfortably afford their credit. Of course, there are instances when people, for whatever reason, are unable to pay back a loan.

In this article, we’ll take a closer look at what happens if you do not repay your loan.

Fees and interest

If you miss a loan repayment, you could be charged a fee. Check your loan’s terms and conditions to see if this applies to you.

You could also find that you may have to pay more interest than you originally expected on the money that you borrowed. This is because you may have the loan for a longer period of time than initially agreed.

Loan providers may inform credit reference agencies

Your lender could report the fact that you have missed planned repayments to credit reference agencies. This could affect your credit record and may mean that you could struggle to get credit in the future.

Lenders could involve debt collectors

If you continue to miss repayments, your loan provider could pass your case to a debt collection agency.

This could result in you receiving demands for the money via the phone or through the post. Alternatively, debt collectors may even come to your home to talk with you about your debt.

County court judgments (CCJs)

A county court judgement is a type of court order that can be used if someone owes money.

Unless you pay back a CCJ within 30 days of when you get the judgement, it will stay on your credit record for six years.

This could result in you having serious trouble borrowing money in the future. Even your ability to open a bank account could be affected.

Do you have a secured loan?

If your loan is a secured loan (where your loan is secured against an asset), your lender could begin proceedings to sell whatever you used as security, in order to get their money.

Don’t suffer in silence

Most importantly, do not ignore what is happening. If you find yourself struggling to pay back what you owe, you can read a guide on what to do if you struggle to keep up with your loan payments.

If you cannot repay a loan, it is important to contact your lender to discuss your debt. There are also various debt charities who can help, too. National Debtline, for example, has created a sample letter that you can use to ask your lender to hold action on your account while you seek advice on what to do next.