What to do if you can't afford loan payments

What can I do if I can't afford my loan payments?

When you can't afford your loan payments, you have several options that can help you get back on track. The most important thing is to act quickly and not ignore the problem.

Contact your lender straight away

Most lenders want to help you keep up with payments rather than see you fall behind. Call them as soon as you realise you might struggle. Explain your situation honestly - whether you've lost your job, had your hours cut, or face unexpected bills. Many lenders will work with you to find a solution, which may include:

• Asking about payment holidays - Your lender might agree to pause your payments for a short time. This gives you breathing space to sort out your finances. Remember that interest usually still builds up during payment holidays, so you'll pay more overall.
• Negotiating a payment plan - If you can afford some money each month but not the full amount, some lenders will accept reduced payments rather than nothing at all. Interest and charges could be frozen to stop your debt from growing. However, this is down to the lender and it’s important you discuss this with them first before making a partial payment.
• Switching to interest-only payments - In extreme cases, lenders might let you pay just the interest for a while. This keeps your account active while you get back on your feet.

Consider a debt management plan

A debt management plan is an informal agreement where you pay back what you owe at a rate you can afford. Debt charities can help you set up these plans and negotiate with your lenders.

Can I cancel my loan repayments?

You cannot simply cancel loan repayments once you've signed a loan agreement. The money you borrowed must be paid back according to your contract. However, you do have some rights that might help.

• Check if you're in your cooling-off period - Most loans give you 14 days to change your mind after signing. If you're still in this period, you can cancel the loan and return the money.
• Look into voluntary termination - For some types of loans, especially car finance, you might be able to end the agreement early. This usually applies when you've paid back at least half of the total amount.
• Understand your consumer rights. If the loan was mis-sold or you were pressured into signing, you might have grounds to complain to the lender. Contact the Financial Ombudsman Service if your lender won't help.

What happens if I miss a loan repayment?

Missing loan payments can have serious consequences, but understanding what happens helps you prepare and take action.

• Your credit score will be lower- Late or missed payments show up on your credit file and stay there for six years. This makes it harder to get credit in the future and might affect your ability to get a mortgage.
• You'll face extra charges - Most lenders charge fees for missed payments. These can be £25 or more each time you miss a payment, making your debt grow faster.
• Your lender will contact you - Expect letters, phone calls or emails asking for payment. Some lenders pass accounts to debt collection agencies after a certain period of time, which can add to the stress.
• Legal action becomes possible - If you miss several payments, your lender might take you to court. This could result in a County Court Judgment (CCJ) against you, which can seriously damage your credit rating.
• You might lose secured assets - If your loan is secured against your home or car, the lender could (as a last resort) repossess these items to recover the money you owe.

I can't pay my personal loan – What should I do?

Personal loans are unsecured, which means they're not tied to your home or car. This gives you some protection, but you still need to act quickly when you can't make payments.

• Contact your lender immediately - Don't wait until you've missed a payment. Call them as soon as you know you'll struggle. Many lenders have hardship teams trained to help customers in difficulty.
• Gather your financial information - Before calling, work out your monthly income and essential expenses. This helps you propose a realistic payment plan that you can actually stick to.
• Consider debt consolidation - If you have multiple personal loans or credit cards, combining them into one loan with one monthly payment might make things easier to manage. Remember, if you consolidate your existing borrowing, you may be extending the term and increasing the amount you repay in total.
• Look into income and expenditure forms - Your lender might ask you to complete one of these forms. They show exactly how much money you have coming in and going out each month.
• Get free debt advice. Charities like StepChange can help you deal with personal loan problems. They have experience negotiating with lenders and can often get better deals than you might manage alone.

I can't afford car payment – What are my options?

Car finance agreements work differently from personal loans, giving you some unique options when you can't afford payments.

• Sell the car - If the car is worth more than you owe, you can sell it and use the money to pay off the loan. However, many cars lose value quickly, so you might still owe money after selling.
• Voluntary termination might be possible - If you've paid at least half of the total amount due under your agreement, you can hand the car back and walk away. This is your legal right under the Consumer Credit Act.
• Voluntary surrender – If you’ve not paid at least half of the car off, you can surrender it, however you’ll still be liable (responsible) for paying back the outstanding amount. This should only be used as a last resort as it can affect your credit rating badly.
• Refinance the agreement - Some lenders will restructure your car finance to reduce monthly payments. This usually means paying for longer and paying more interest overall.
• Part exchange for a cheaper car - Your dealer might let you swap your current car for a less expensive one, reducing your monthly payments.

What help is available?

Many organisations across the UK provide free help with debt problems. You don't have to struggle alone, and getting help early often prevents problems from getting worse.

• Citizens Advice offers free, confidential advice on debt problems. They have offices across the UK and provide online help too. They can help you understand your rights and negotiate with lenders.
• StepChange specialises in debt advice and offers free debt management plans. They can help you work out what you can afford to pay and negotiate with all your lenders.
• National Debtline provides free telephone advice and has lots of helpful factsheets on their website. They can assist with understanding your options and dealing with difficult lenders.
• Your local council might offer money advice services or know about local charities that can help. Many councils have welfare rights officers who can check if you're getting all the benefits you're entitled to.
• Mental health support is available if debt problems are affecting your wellbeing. Samaritans, Mind, and your GP can provide support and guidance.

Remember, seeking help with debt problems is a sign of strength, not weakness. The sooner you get help, the more options you'll have available to solve your money problems and get back on track.

Disclaimer: We make every effort to ensure content is correct when published. Information on this website doesn't constitute financial advice, and we aren't responsible for the content of any external sites.