What Can I do if I am Struggling With Secured Debt?

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.

In this article, we focus on what to do if you miss payments on loans secured against your house.

Read on to find out what you can do if you think you may miss a repayment on your secured loan or if you’re 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 with your repayments and clear any outstanding debt, the damage will be minimised. However, lenders are likely to impose late payment fees if you miss any repayments.

Lenders should be open to dialogue and discuss alternative repayment plans to help you pay off your loan. For example, they could extend your loan term so your repayments are smaller or delay interest payments. Bear in mind that repaying over a longer period could mean you need to pay more interest and so pay more 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 with your lender and keep them informed of your situation.

Get debt advice

Dealing with debt, especially secured debt, can be very stressful and worrying. However, there is no need to go through it on your own as there are a number of debt charities you can turn to for help and advice.

They can help you to work out what the best course of action is for your situation and guide you through the next steps.

It’s possible that lenders may be more flexible and willing to arrange a new repayment plan if they see you’re seeking professional help with your debt and finances.

» MORE: How to get free debt help

Apply for a breathing space

This is something that a debt advice service may recommend. A “breathing space”, also known as the Debt Respite Scheme, was launched in May 2021 to offer some relief for people struggling with debt.

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 a breathing space, you will need at least one qualifying debt and seek help from a professional debt adviser. Only advisers and charities authorised by the Financial Conduct Authority (FCA) can trigger a breathing space; you can’t apply for one independently.

The debt adviser will determine if a breathing space is 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.

» MORE: What is a breathing space?

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 you haven’t worked out a way to repay them, your lender may choose to take further action.

Lenders will need to follow certain protocols before they can take you to court, including 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, but this still 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, they should allow you to keep your home.

For example, you may be able to get a time order from the court that will give you more time to repay the loan and set the amount you 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 there is no other option open to you.

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, you should get professional advice as soon as possible if you haven’t done so already. Each individual situation is different, so getting tailored advice for your own personal circumstances will allow you to receive the best help and guidance.

Especially if lenders do take legal action, it can be confusing to understand exactly what is happening, so having a debt adviser talk you through it can help to make things clearer.

Unsecured debt

If you fall behind on payments for loans that are not secured against your property, your house won’t be at risk.

As with secured loans, you should speak to your lender as soon as you think you’ll struggle to make a repayment. You may be able to arrange a new repayment plan, which is more manageable, and find a way to repay any payments you missed, but bear in mind you are likely to face fees for late payment.

Missing multiple payments and failing to come to an agreement with your lender could lead to further action being taken through the courts. You may set up an individual voluntary arrangement (IVA) or a debt relief order (DRO), or you may be issued with a county court judgment (CCJ).

The legal process is different in Scotland where CCJs are known as decrees.

In Northern Ireland, CCJs work in a different way from those in England and Wales and from decrees in Scotland.

You can find out more about what happens if you can’t make your loan repayments.

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