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If you fall behind on your secured loan repayments, there is a risk that the lender will repossess your property. This can be very worrying, but it’s important to bear in mind that repossession will always be a last resort if no alternative form of repayment can be arranged. Asking for help early on, before falling into arrears, can minimise the chances of losing your property.
Read on to learn what else you could do if you’re concerned about meeting repayments or are already in arrears.
Speak to your lender
You should contact your lender as soon as you think you’ll have problems repaying your loan, ideally before you miss a payment.
Missing one or more payments will harm your credit score, but if you get back on track and clear any outstanding debt, the damage should be minimised. Be aware that lenders are still likely to impose late payment fees for missed payments.
Lenders should be open to dialogue and discuss alternative repayment plans to help you pay off your loan. It may be they offer to extend your loan term, so your repayments are smaller, or agree to delay interest payments. Bear in mind that repaying over a longer period usually means paying more in interest overall.
If you are already in arrears, the lender should give you an opportunity – albeit only a small window – to repay the outstanding sum before it can register a default on your credit file. You may be able to arrange to add this sum on to your total remaining debt and repay it through your monthly repayments, if you can show the lender you can afford to do this.
You may receive a default notice if you have missed payments for more than three months, or paid less than agreed.
It’s in the best interest of both you and the lender to work out an agreement if you are struggling with your secured loan repayments, so it’s important to communicate and keep them informed.
Get debt advice
Dealing with debt, especially secured debt, can be stressful and worrying. However, there are a number of debt charities you can turn to for help and advice, so you don’t need to go through it on your own.
Such organisations can help you work out the best course of action and guide you through the next steps.
It’s possible that a lender will be more flexible and willing to arrange a new repayment plan if they see you’re seeking professional help with your debt and finances.
If you are struggling with debt, seek advice from one of these debt advice services:
- StepChange
- The Money Charity
- Citizens Advice
- MoneyHelper (formerly The Money Advice Service)
- National Debtline
Apply for ‘Breathing Space’
The Breathing Space Debt Respite Scheme is a government initiative designed to give people struggling with debt temporary protection from creditors while getting debt advice.
Standard ‘breathing spaces’ last for up to 60 days and, although they’re not a payment holiday, they stop additional interest and charges from accumulating on your debts. Lenders also won’t be able to enforce any debt collections or continue with any legal proceedings during this period.
To qualify for breathing space, you will need at least one qualifying debt and must apply through a professional debt adviser, who will determine if it’s a suitable course of action for you or not.
Breathing spaces are only available to individuals in England and Wales. The Statutory Moratorium is a similar scheme in Scotland. There currently isn’t an equivalent scheme for Northern Ireland.
There is also a mental health crisis breathing space, which can offer further respite for individuals who are receiving treatment for their mental health.
If you face legal action
Unfortunately, it won’t always be possible to come to an arrangement with your lender. If you have missed multiple payments on your secured loan and not worked out a way to repay them, your lender may take further action.
Certain protocols must be followed before a lender can take you to court. This includes telling you exactly how much you owe and offering you alternative ways of repayment.
You will be notified if the lender intends to go through the courts, though this doesn’t necessarily mean you will lose your home.
If you can show the judge that you have a plan to repay the arrears and can afford to repay the rest of the loan, you may be allowed to keep your home. For example, a court could issue a time order that will give you more time to repay what owe and set an amount you must pay each month.
If you can’t find a way to pay off your arrears and repay the loan, you may choose to sell your home rather than wait for it to be repossessed. However, this decision shouldn’t be taken lightly and you should seek professional advice to make sure it’s the right option.
If you have a mortgage and a secured loan, your mortgage lender will get priority if your property needs to be sold to clear your debts.
If you are facing legal action, get professional advice as soon as possible if you haven’t done so already. Situations can be very different, and getting tailored advice means you’ll receive the best help and guidance.
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