Default Loans

We’ll walk you through everything you need to know about applying for a loan after you’ve defaulted on one.

Table of contents

Written by Mark Grimley
Read time: ~5 mins
Published: 28th September 2023

What does it mean to default on a loan?

It's when you break the terms of your loan agreement, which means:

  • missing payments
  • regularly making late payments
  • stop making payments

A loan default can occur regardless of how much money you owe, whether it's £50 or £1,000s.

The consequences of defaulting on a loan depend on the loan type, for instance, the action your lender takes differs if you default on a secured loan as opposed to a personal loan.

What happens when you default on a loan?

If you start to fall behind on your loan repayments or another type of credit, you'll get a default notice from your lender.

The notification is normally sent when you've missed or underpaid what you owe on your loan for three to six months. At this point, you'll need to pay the amount you owe to cover the missed payments to avoid a default.

If you can cover the missed payments, your loan agreement will continue and no further action will be taken, but if you cannot pay, your account will be closed and the loan will default.

What is a default notice?

A default notice is a formal letter from your lender informing you that you've broken the terms of your credit agreement. It'll warn you that your loan is about to default because you're behind with your payments.

The default notice may ask you to pay the outstanding debt immediately or give you a set period to catch up with any missed payments.

Default notices only apply to debts regulated by the Consumer Credit Act. These include credit cards, personal loans, short-term, high-cost loans, and hire purchases.

What happens if I default and can't pay?

Once you've defaulted on a loan, you'll usually have to pay the full amount of the loan back instead of paying the monthly instalments you originally agreed to.

Your lender may take further action if you don't respond to the default notice and your loan has defaulted. This may include:

  • Passing the debt to a collection agency
  • Taking you to court

How long does a default last?

A loan default stays on your credit file for six years regardless of whether or not you eventually manage to pay back what you owe.

Whilst there's a record of default on your credit report, it will be more difficult to do things like borrow money, secure credit or get car finance. Even if you are successful, loans for default credit have higher interest rates and will therefore cost you more.

Once your default is removed from your credit report, the lender won’t be able to re-register it, even if you still owe them money. However, if the lender pursues the debt, you may have a CCJ registered against you, or they could sell your debt to a debt collector.

Can you get a loan after a default?

It's possible, but if you defaulted on a loan in the past, your circumstances need to have changed for a loan to be right for you.

Loans for people with previous defaults tend to attract higher interest rates and stricter agreement terms.

This is because when you apply for a loan, loan companies check your credit history to assess if you’re likely to pay them back. A default suggests you could pose a risk and may not honour future repayments.

If you’re looking for a loan, consider a loan for people with bad credit, but make sure you can afford the monthly repayments for the entire term because this type of loan can be expensive.

It's unlikely you'll get a default loan from a high street bank, but you may find loans for default credit via:

  • online loan brokers
  • price comparison websites like ours
  • specialist direct lenders

What happens when you pay a default?

Once you've paid off the money you owe, the default will still appear on your credit file for six years, so getting approved for a loan in the future may prove tricky, and your choice may be limited.

You can reduce its impact and increase your chances of loan approval by doing the following:

Pay off what you owe as soon as possible

Once the debt has cleared, the default will be marked as ‘satisfied’ on your credit report and will look better to future lenders.

Ask your credit agency to add a report note

This helps lenders understand why you got into debt in the first place, for instance, redundancy.

The good news is, as your default ages, the impact lessens, so you may find it easier to get approved for credit as time passes.

Are there any alternatives to default loans?

Debt consolidation loans

If you're seeking a loan to pay off multiple debts, a debt consolidation loan allows you to borrow a set amount to pay off multiple debts, which you then pay back with one monthly payment.

This type of loan is a helpful way to gain control over your debt and improve your credit score. However, if you’ve previously defaulted on a loan, providers of debt consolidation loans tend to have stricter agreement terms, making being accepted for one more difficult.

Credit building cards

If you need a small loan but have bad credit, a credit builder credit card is worth considering. These cards have low credit limits and lower rates than loans for default credit.

However, you must repay the balance on time and in full every month to build your credit score. If not, you could damage your rating further and face penalties.

Credit union loans

If you are a member of a credit union or belong to a community with a credit union, you could see if they would be willing to lend to you. This type of loan may have lower rates and cost less than bad credit or default loans.

Peer to peer

A P2P loan, where people lend and borrow from each other rather than a bank or lender, could be easier to get than a personal loan from a bank. However, you still need to pass credit and affordability checks.

Your credit score will determine the rate of interest you’ll be charged. A high interest rate means your loan will cost more overall.

Can I remove a default on my credit report?

No, you can't unless it's been put on your record by mistake or you've been the victim of fraud.

You could ask the credit reference agency to add an explanatory note to your credit report if your default has been caused by circumstances outside your control, such as;

  • long term illness
  • redundancy
  • unforeseen events

Default loans FAQs

How long does a default stay on your credit file?

Your default will stay on your credit file for six years, but there are things you can do to reduce its negative impact, such as paying off your debts as soon as possible and taking out a credit building card to improve your credit score.

Could I lose my possessions if I default on a loan?

It depends on the type of loan default, but if your lender takes court action or passes the debt to a collection agency which takes court action, you could be at risk of losing some of your possessions.

For example, your creditor may apply to a court to take back a vehicle bought on hire purchase.

If you default on a secured loan, you may be at risk of losing your home.

Will paying my default improve my chances of getting accepted for a loan?

Yes, it may improve your chances of acceptance, but it won't guarantee approval or reduce the interest rate you're offered because the default stays on your credit report for six years.

Loan companies will assess risk based on your credit history, so whilst your credit report will be in better shape - some lenders may still be reluctant to lend you money.

Written by
Mark Grimley
Head of Partnerships & Take Control Author at Choose Wisely

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.

Important Information.

All of the information in this guide is correct at the time of writing.

If you complete a loan search application on the Choose Wisely website, the rates shown may vary based on your personal circumstances, are subject to status and are available to those aged 18 and over. Rates available range from a minimum of 13.9%APR to a maximum of 1721%APR Representative and loan repayment periods range from 3 to 60 months.

If you need financial advice you can visit stepchange, speak to citizens advice, call the national debtline or speak to

If you've been declined, please refer to your credit report to gain an understanding of why before making further applications.
You can access your credit report for free from Credit Karma, Clearscore or Experian.

Warning: Late repayment can cause you serious money problems. For help, go to