I can’t pay my secured loan – what should I do?

If you can’t pay your secured loan you should speak to your lender as soon as possible. They may be able to put an affordable arrangement in place. It will also reduce the risk of your lender repossessing the asset that your loan is secured against, to recover owed funds.

6 min read
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What happens if I don’t pay back my loan?

If you don’t pay back your secured loan, the following may happen:

  • Interest and late fees may be applied
  • A default may be registered on your credit file if you miss three to six payments 
  • A County Court Judgement (CCJ) could be applied (once the debt has defaulted)
  • As a last resort, your lender could apply for a court order to repossess the asset the loan is secured against. Your lender may force the sale of your home to recover owed funds, if you fall behind on payments towards a homeowner loan, for example  

10 tips if you can’t pay back your secured loan

We’ve got 10 tips to help if you find yourself struggling to pay back your secured loan: 

1. Talk to your lender

Talking to your lender is the golden rule. You may feel worried or embarrassed talking about your money troubles with a stranger, but lenders are there to help if you’re in financial difficulty.

Contact your lender as soon as you think you'll miss a payment to avoid any serious consequences. If you don’t feel comfortable ringing them up, you could use this letter template created by Citizen’s Advice to get in touch. 

It’s best to explain the reason why you can’t pay and see if there’s any flexibility on their side. They may agree to a reduced payment plan or freeze interest and charges until you’re back on your feet, for example. 

Lenders don’t have to agree to such a plan.

Tip: Ask your lender if your credit score will be affected if you make reduced payments. 

2. Review your budget

The easiest way to review your budget is to list all of your monthly income and outgoings. Write them down as they appear on your bank statement. This will help you find areas to cut back on. Then you can use any savings you make to repay your loan.

For example, it may be possible to reduce spending on non-essential items like:

  • Takeaways
  • D or standing orders (if you are still paying for things you no longer use)
  • TV/gym subscriptions

Check out 100 money-saving hacks you could start today.

3. Prioritise your debts

It’s wise to prioritise your household bills and debts to avoid serious money problems.

Priority bills include (in no particular order): 

  • Secured loans
  • Mortgage
  • Rent
  • Hire purchase or logbook loans
  • County Court Judgement (CCJ)
  • Council tax
  • Child maintenance
  • TV licence
  • Magistrate court fines
  • Gas and electricity bills
  • Current telephone bills
  • Tax, VAT and National Insurance

Non-priority bills include: 

  • Water 
  • Unsecured debts (such as credit cards, overdrafts, personal loans, payday loans, store cards and catalogues)
  • Overpayments of benefits - apart from tax credits
  • Unpaid parking tickets 
  • Money owed to family or friends

Though the consequences for falling behind with non-priority debts are less serious than priority debts, we aren’t suggesting that you stop paying them. 

Try to maintain at least the minimum repayments on your non-priority debts. Missing payments could impact your credit score and make it harder to get credit in the future.

4. Speak to family or friends

Perhaps you have generous family members or close friends who could help you out? Borrowing off the ‘bank of mum and dad’ could save you in interest and charges. Plus, if you’re able to pay your loan on time, you’ll avoid negative markers on your credit report. And you’ll be able to keep the asset the loan is secured against. 

Tip: Bear in mind that money can test relationships. So make sure you manage their expectations about when they’ll receive the money back.


5. Consolidate your debts

If you have more than one debt, consider debt consolidation. This involves taking out a new loan to pay off all of your existing debts. Some people find this appealing as they only have to make one payment to one lender each month.

By merging your balances in this way, you could replace your secured loan with a personal loan. Unsecured loans are not tied to any form of property so there is less risk involved. 

Remember, if you consolidate your existing borrowing, you may be extending the term and increasing the amount you repay in total.

Other factors to consider:

  • Your existing lender may apply early repayment charges if you pay off the secured loan earlier than agreed 
  • Check the loan term or interest rate (you can be charged more interest on personal loans)
  • Make sure you can afford to maintain your repayments on time, every time. Missing payments on your debt consolidation loan will reduce your credit score and ability to borrow in the future

6. Check for Payment Protection Insurance (PPI)

Check your loan agreement or ask your lender if you have Payment Protection Insurance (PPI) on your secured loan. If so, your loan repayments may be covered if you’re out of work, ill or have had an accident. Bear in mind, this is a short-term solution, as PPI will only cover you for a set period.

7. Use savings

If you’re lucky enough to have some savings stashed away, consider using them towards your loan. Check if the interest you’re charged on your secured loan is more than you gain on savings. If so, it makes sense to use savings to pay debts

Tip: Just make sure you won’t face any early repayment charges before you go ahead.

8. Switch bill providers

Consider switching bill providers to generate cash to pay your loan. This includes everything from utilities to mobile phone contracts and car insurance. 

Use comparison websites to find the best deals available. Then you can either switch or ask your existing provider if they can match the deal you’ve found. Before your switch, remember, there may be a termination fee for ending your contract early. 

9. Check if you’re entitled to benefits

You can check if you’re entitled to benefits on the Government’s website. Or you could also visit the EntitledTo page which has a useful benefits calculator to give you an idea of how much you could claim. It only takes a few minutes to fill in your details.

10. Request a payment break

If you’re feeling the pinch, think about asking your lender for a payment break. An agreed payment break allows you to take a short break from repaying your loan, for a set period. 

Be aware, there is no guarantee the lender will accept your request. It depends on their lending criteria and your individual circumstances. But it is much better to request a payment holiday than to simply stop payments without telling them. This could lead to serious consequences, as mentioned above.

Bear in mind that if you take a payment break, interest will continue to apply in the background. So your loan will cost you more in total, and could take longer to repay.

How to get help with my loan debt?

We suggest you get in touch with your lender straight away to get help with your loan debt. If you don’t feel comfortable doing this, you could speak to Citizens Advice, or debt charity like StepChange instead. They offer free, non-judgemental advice and can contact your lenders on your behalf.