What happens when you fall behind on loan payments?

Falling behind on loan payments can be worrying, especially when you’re unsure about how to get back on track. But there are plenty of ways to take control of your finances again.

Our guide offers insights on what happens if you miss a loan payment, while offering top tips on how you can avoid issues in the future.

In this guide:

• What happens if you miss a loan payment?
• I can’t pay my debt: What should I do?
• How can you prevent future issues?
• Discover more helpful resources

What happens if you miss a loan payment?

Applying for credit or a loan can sometimes help provide extra breathing room to cover emergency costs and expenses. But if you’re struggling to pay your debt and you end up missing a repayment, there are various potential consequences that you should be aware of.

Find out what happens if you don’t pay back a loan below:

• Late payment fees: Many lenders charge penalty fees for late or missed payments.
• Credit score damage: Missed payments can negatively impact your credit score, making it difficult to be accepted for future credit. And if you’re accepted with bad credit, you may be restricted to less favourable terms and interest rates. Read our guide on how long missed payments stay on your credit report for more.
• Debt collectors: If you miss repeatedly repayments, debt collectors may contact you on behalf of your creditor.
• Court action: For larger debts, or if you don’t respond to contact, creditors may also take legal action to recover the funds.

I can’t pay my debt: What should I do?

So, you might be thinking, if I can’t pay my debt, can I reduce my monthly loan payments? And are there alternative options I can look into? Well, there are a few different steps you can take:

1. Contact the lender

First, you should contact the lender and make them aware of your situation. You might be able to come to an agreement where you can repay your debt in smaller or more manageable instalments. Call the lender as soon as possible and explain your situation in detail. Reputable lenders should always be sympathetic to your situation, discussing options such as a debt repayment plan or temporary break.

If you’re yet to miss a repayment, but you’re worried that you may struggle to meet future ones, you should still contact your lender immediately. Please contact us immediately if you’re a Moneyboat customer and worried about making your next repayment. The sooner we speak, the sooner we can set up a manageable plan to help get you back on track.

2. Debt consolidation

If you have debt from more than one lender and you’re falling behind on multiple payments, a debt consolidation loan may be a viable option.

This allows you to combine your debts into one monthly repayment, with a single interest rate. By simplifying repayments, debt consolidation loans may help borrowers keep up with timely, consistent repayments.

For more on this topic, dive into our full debt consolidation guide. Explore insights on the potential benefits, as well as the risks. That way, you can make an informed decision on whether it’s the right option for you.

3. Seek free debt advice

If you’re still struggling with your finances, there are various third-party organisations available for free advice:

• National Debtline: A registered charity that offers advice over the phone and online.
• StepChange: Offers online support on debt, budgets, and determining practical next steps.
• Citizens Advice: Provide confidential advice on everything from debt, benefits, and consumer rights.

You can find more information on all of these services (plus many more) on the GOV.UK website. There’s plenty of help out there, including face-to-face, telephone, and online support. Always remember to check that any organisation you contact is regulated by the Financial Conduct Authority (FCA).

After contacting an organisation, they’ll often guide you through steps such as creating a budget, prioritising certain debts, and coming up with tailored repayment plans to suit your situation.

How can you prevent future issues?

There are plenty of practical steps you can take to help manage your finances and lower your credit usage. We’ve gathered some key insights as a starting point to help you take charge of your finances:

1. Create and stick to a budget

Our first tip when it comes to taking charge of your finances is to create a budget and stick to it. This can make a real difference, allowing you to take control and ensure you have the funds to meet your repayments.

First, you’ll need to make note of your monthly income and expenses. This will give you a clear picture of exactly how much money you have to work with.

Many people find the 50/30/20 budgeting method helpful. This is where you allocate:

• 50% of your income to essentials
• 30% to wants and personal spending
• 20% towards your savings

When you’re planning your first budget, make sure to also bear the following in mind:

• Set realistic goals: It’s important to set goals that you can manage – this can help you to stay motivated and stick to your saving goals.
• Review regularly: It’s also key to regularly review your budget. This way, if your goals and priorities change, you can adjust it accordingly. Equally, if you find that you have more disposable income, you might be able to pay more into your savings.

For more tips and resources on managing your monthly finances, explore our guide to creating a budget. There, you can find our budget checklist and free budgeting tool to help you get started.

2. Build an emergency fund

By implementing the budgeting tips above, you’ll be able to work towards building an essential emergency fund. If you can build a healthy savings pot, you’ll have added peace of mind that you’ve got a portion of money set aside to help cover financial emergencies in the future.

Once you get into the habit of saving regularly (even if it is just a small amount here and there), your savings pot will soon grow over time.

3. Set up automatic payments or reminders

Setting up automatic payments is a simple way to keep to a schedule. When payments are automatic, you reduce the risk of missing repayments and facing late payment fees.

It’s crucial to practice effective monthly budgeting to help make sure the money is available when it’s time to pay.

Discover more helpful resources

Once you know what happens if you don’t pay back a personal loan or payday loan in the UK, you can prepare your finances to help avoid the consequences. From late payment fees to negatively impacting your credit score, you should avoid missing loan payments at all costs.

By sticking to a budget, arranging automatic repayments, and gradually setting money aside for an emergency fund, it can be easier to feel in charge of your finances.

Looking for more insights like this? Explore our guides for more information on how to get out of debt and what to do if you are struggling to repay your payday loan.

And remember, you can always reach out to National Debtline, StepChange and Citizens Advice for free, independent support.

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Warning: Late repayments can cause you serious money problems. For help, go to www.moneyhelper.org.uk.

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