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 you can take control of your finances again, many of which we’ll dive into below.

Our guide offers insights on exactly what happens when you fall behind, while offering top tips on how you can avoid issues in the future.

What are the consequences of late repayments?

If you’ve failed to make a debt repayment, you might be wondering exactly what happens next. Well, there are a variety of consequences associated with late or missed payments, including:

• Late payment fees: many lenders charge penalty fees for late or missed payments.

• Credit score damage: missed payments can also negatively impact your credit score, making it difficult for you to be accepted for future credit (or restricting you to less favourable terms).

• Debt collectors: if you miss repayments repeatedly, debt collectors may also be employed (depending on your loan type plus the amount owed).

• Court action: for larger debts, creditors may also take legal action to recover the funds (this is why it’s important to always aim to stay on top of payments).

Your next steps…

So, with this in mind, you might be thinking, if I can’t pay my debts, what options do I have in the UK? Well, don’t fret, as there are a few steps you can take.

1. Contact the lender

As your first port of call, you should contact the lender and make them aware of your situation. This is key, as you might be able to come to an agreement where you can repay your debt in manageable amounts.

Simply call the lender and be ready to explain your situation in detail. You may be able to discuss options such as a debt repayment plan, or perhaps even taking a temporary break.

Even if you’re yet to miss a payment, but are worried you may do so in the future, you should still contact your lender immediately. Hopefully, you’ll be able to set up a manageable plan to 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 consolidate debts into a single monthly payment (with a single interest rate). In the absence of multiple intersecting deadlines, you’ll hopefully be able to stay on track with making timely, consistent payments.

For more on this topic, make sure to dive into our guide on debt consolidation. This offers insights on its benefits as well as its risks, helping you make an informed decision on whether it’s the right option for you.

3. Seek free debt advice

If you’re still struggling, you can contact Citizens Advice or the National Debtline for further help. You’ll be able to explain your situation to advisors who are equipped to help you with debt-related queries.

You can find more information on both of these services (plus many more) on the GOV.UK website.

There are various ways to seek free debt advice, whether this is face-to-face, over the phone, or online – but make sure whichever organisation you contact is regulated by the Financial Conduct Authority (FCA).

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

If you’re worried about debt, it’s always best to talk to someone about it. Doing so can help you see that there are options out there which will lead you towards a more financially stable future.

How can you prevent future issues?

Wondering how to get out of debt and prevent future problems from occurring? Well, the below insights offer you a fantastic starting point for taking charge of your finances:

1. Create and stick to a budget

Our first top tip when it comes to taking charge of your finances is to create a budget and stick to it. Doing something as simple as this can make a real difference, allowing you to take control and ensure you have the funds to meet any deadlines.

But exactly how should you go about doing this? Well, as a starting point, you’ll need to make a note of your monthly income as well as your monthly expenses. This will give you a clear picture of exactly how much you have to work with!

Many people find the 50/30/20 budgeting rule helpful. This is where you budget 50% of your income on essentials (such as bills), 30% on wants or personal spending, and the remaining 20% on building up a savings pot. Although remember, everyone’s financial situation is different, and these percentages can be adjusted to suit your individual needs.

But how can you ensure you stick to your budget? Well, here are a couple of handy tips:

1. Make sure to set realistic goals: first, it’s extremely important to set up a budget and implement goals that are realistic. Otherwise, you may lose motivation and struggle to stick to them.

2. Regularly review it: it’s similarly important to regularly review your budget, this way, if your goals and priorities change, you can adjust it accordingly. Equally, if you find that you’re getting more disposable income, you might be able to pay more into your savings.

Make sure to check out our full guide on effective monthly budgeting tips for more on this topic. We offer insights on the best budgeting apps, as well as where you can look to cut back on your expenses.

2. Build an emergency fund

By implementing the above budgeting tips, you’ll be able to work towards building a substantial emergency fund. And, if you have a healthy savings pot set aside, you’ll have peace of mind that any future financial emergencies are covered.

You’ll find that if you get into the habit of saving regularly (even if it is just a small amount here and there) your savings pot will soon fill up.

Make sure to dive into our guide: how much can I save in a year? This is filled to the brim with tips on how you can start saving.

3. Set up automatic payments or reminders

You can set up automatic payments to help clear your balance. If you’re able to keep to your budget, you can be confident that the funds are available, ready to be paid to the lenders, and that paying back your loan is on track.

However, if you’re worried about payments coming out when you don’t have enough in the bank, set up reminders that prompt you when it’s time to make your repayments.

Hopefully, you’re now feeling empowered to take charge of your finances and get back on track with your loan repayments. Through factors such as sticking to a budget, creating an emergency fund, and setting up prompts, you’re bound to avoid any future issues.

For more insights, make sure to head over to the Moneyboat blog! There, you can dive into more financial information support, such as our full guide on what to do if you are struggling to repay your payday loan.

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