What to do about missed or late bad credit loan repayments
It’s important to phone up or email your lender if you’re worried that you might not be able to make a loan repayment. Missing a repayment just means you’re kicking the problem further down the road. In a few hours, weeks or, if you’re lucky, months, you’ll still have to pay back the amount outstanding
Missing a repayment can also mean that you get hit by a fee from your lender and charged more interest, which will make your loan more expensive. If that’s not bad enough, it will damage your credit score, so it could be difficult to take out a loan or card, apply for a new phone contract and rent a flat in the future.
Don’t worry - take a deep breath and we’ll guide you through your options, so you don’t make the mistake of missing a loan repayment.
How do missed payments affect my finances?
If you miss a loan repayment, you’ll usually end up worse-off over the lifetime of the loan. The lender will often charge interest on overdue bad credit loan monthly payments, so the total cost of borrowing money will be higher. Check your contract to see if there are also fees for late repayments - many lenders will add extra costs to your bill if you miss a payment.
In the longer term, the missed repayment will damage your credit score. This means that the next time you take out a loan or card, apply for a phone contract or even a mortgage, you may not get good value for money. You’ll be paying the lender more, as they’ll know you’re less likely to pay back a loan or card on time, in full.
How can I avoid getting into arrears on my bad credit loan?
So you’re about to miss a payment and you don’t know what to do - what are the first steps to take that might help you get cash quickly or avoid spending it?
What could you do now?
- Only go to the shops for essentials like food and medicine - avoid the high street and retail parks where you may be tempted by ‘deals’
- Cancel nights out and avoid coffee dates - meet friends at home instead!
- Write down all the money and bills coming into and out of your bank and work out how much you have left for the month, then make a budget
- Eat up your freezer food, don’t fill up the petrol until it’s nearly in the red and call in any money you’re owed by friends and relatives
- Look for evening and weekend jobs at shops, bars and through temp agencies
- Sell off old clothes, furniture or electronics on Gumtree, eBay or Facebook Marketplace
- Ask your parents, grandparents, brothers and sisters, or close friends for a loan
What could you do later?
- Cut back on nights out by setting yourself a monthly budget and sticking to it
- Plan ahead for Christmas, birthdays and anniversaries and save up for presents
- Compare prices for car insurance, gas, electricity and credit cards to get the best deal
- To build up your credit score you could use a credit card for smaller things and pay it off before the end of the month
- Get a second job or ask for more hours from your boss, if you can fit them in
- Start buying own-brand foods or shopping at cheaper supermarkets like Lidl and Aldi
- You can keep track of spending by putting your monthly budget on a prepaid card or in an app-only bank
Can I negotiate with my lender?
It depends on them. If you’re able to find the cash yourself without borrowing more, that’s your best option, but if you’re in need of help, the lender may be flexible.
It’s best to give them a call on the phone. Make sure you’re friendly and polite, even if you’re under a lot of pressure. Remember that the company doesn’t have to help you out, but you’re more likely to get help if you’re nice to them! Many lenders have a range of different options to help people when they’re stuck, such as ‘loan repayment holidays’.
Can I pause my bad credit loan repayments?
Most lenders will let you have a loan repayment holiday providing you:
- Have made at least one repayment and have a direct debit in place
- Are up to date with your loan repayments
- Are not be in the process of making a loan protection insurance claim
- Have at least 30 days remaining on your loan term
Beware that this may vary from lender to lender, as they have different ways of deciding which customers are allowed to take a loan repayment holiday.
How much does a late credit loan payment affect your credit score?
When you apply for a loan or a card, or any other kind of ‘credit’, the lender will check your credit score, to see if they’re happy for you to borrow their money. This credit score is calculated by a few different credit referencing agencies. The government lets these companies keep track of your spending, including missed payments, to see how good you are at managing your money.
Your credit score can be anything from ‘Very Poor’ to ‘Excellent’. When a company puts you through a ‘credit check’, this means they check your score and use it to work out how risky it would be to lend you money. If they’re happy to take on that risk, then you’ll be offered a card or loan. That’s why it’s important to go for a lender that is interested in people with your credit score. If you’ve got a ‘poor’ or ‘bad’ credit score, you won’t get a loan from a ‘good credit lender’ - you’ll need to go for a ‘bad credit loan’. There are even ‘very bad credit loans’ available from some lenders.
What's the best way to prioritise multiple loan repayments to keep my finances in good shape?
If you’ve used up all your other options and you have to choose between different loan repayments, there are two things to consider. The most important one is your mortgage and/or car loans - if the loan gives you a roof over your head or it’s essential for your job, then it should be a top priority.
The second is cost - if you have two loans or cards and you can only afford to pay back one of them, check how much it will cost you in fees and interest if you miss a payment. Consider paying back the more expensive one and asking the other lender for a payment holiday or help with your money troubles.
If you’re in a situation where you have to choose between repayments, check in with a debt advice charity first, as they may be able to help. If this is likely to be a problem in the future, think about consolidating your debt with a lower interest rate.
How long do I have to pay a missed bad credit loan payment before I am charged?
If you contact your lender to ask for a loan payment holiday, they should be able to let you know how long you will have to pay it off. You can find contact information for many of these companies in our lenders library.
What happens if you are unable to pay back your bad credit loan? Four vital steps to take:
- Speak to your lender and explain your situation - ask if a loan repayment holiday is available for you
- Ask your family and close friends if you can borrow some money
- Don’t take on any more debt. The more you borrow, the more you’ll have to pay back!
- Make a budget and see if a debt consolidation loan could help you manage repayments
I have a guarantor loan - what happens when I miss a payment?
If you can’t afford a payment of your guarantor loan, you should get in touch with your guarantor before the repayment date. Whatever happens, they’ll end up paying the bill, but if you tell them in advance, they may be able to lend you the money.
If the guarantor lends you the cash and you pay the bill with their money, it won’t affect your credit score. The worst that could happen is that they’ll be a little annoyed! However, if you miss a payment without telling your guarantor, they’ll get charged for an unexpected repayment which could make them overdrawn and it will damage your credit score. Both of you will be worse off!
What is a County Court Judgement or a CCJ?
If you’re asking this question, hopefully you don’t have a CCJ, as it can really damage your credit score. A County Court Judgement (CCJ) is a warning on your credit file, which a court issues to let future lenders know that you failed to repay a debt. However, if the debt is repaid in full within a month of you receiving the CCJ order through the post, it will be cleared from your credit record.
Lenders know that it’s risky to offer a card or loan to someone with a CCJ, so they’ll charge much more. A CCJ can seriously impact your likelihood of being accepted for a card, loan, phone contract, mortgage or even a renting a flat. The warning will stay on your credit report for 7 years, so if you can afford to pay off the CCJ within the first month, this would be a very wise move!
While you’ll be charged more for borrowing, it’s still possible to get credit if you have a CCJ - you just need to apply to the right lenders. When you compare loans, you’ll need to tick the box for ‘Lenders accepting those with arrears, defaults or CCJs’.
What is a default notice and how do I know if I have one on my credit file?
If you’ve missed more than one repayment on your loan, you may receive a default notice through the post. It’s the lender’s official way of telling you in writing that, if you don’t start paying it back, you’ll ‘default’ on the loan.
Defaulting means that the company will stop asking for repayments and start asking for a lump sum - the full amount you owe them. This debt could then be passed onto a debt collection agency or the company could start legal action through the courts. Either way, it’s not good news - you should look for help from a debt advice charity long before this happens.
If you’ve defaulted in the past and want to build up your credit score again, or need to find out what’s in your credit file, have a look at our handy guide.
Could a debt consolidation loan help me manage my other bad credit loan repayments?
If you’ve got a few different debts, such as more than one short term loan or lots of credit cards, you’ll know that sometimes it can be difficult to keep track of repayments. Some lenders will let you merge lots of different loans into one single loan, called a ‘debt consolidation loan’. This might be easier to manage if you’re able to get a loan with a low interest rate. However, if the interest rate is higher than what you’re already paying, this type of loan probably isn’t a good idea - it will be expensive and could make it harder for you to get on top of any money problems.
You may have to pay a one-off fee to move your debt across into the debt consolidation loan, so it’s worth checking how much that will cost you before applying. As with any loan or credit card, you should be certain that you can repay it on time, in full, before applying.
I’ve tried all of the above but I still missed my loan payment - what’s next?
If, for whatever reason, you have difficulty with your loan repayments, your first step should be contacting the lender (ideally on the phone) to explain what’s happened. They may be able to cut you some slack, but they’ll certainly be pleased that you’re reaching out to try and fix the situation. Before you call them, have a good think about what you’re going to say. Lying will usually cause more problems than it’s worth, so be honest and polite - they’ll be more likely to help you out!
Your lender may give you an idea about what to do, but sometimes they may not be able to help or aren’t very understanding. Your next step should probably be a debt advice charity or the Money Advice Service, who have loads of experience with helping people in similar situations.
Mark joined Choose Wisely in 2015. He continues to work in close contact with the providers, brokers and journalists operating in the world of consumer credit.