What happens if you miss a payment on a loan?

It’s understandable if you’ve missed a loan payment. There are things you can do straight away to help:

Contact your lender

Let your lender know you’ve noticed a missed payment on your loan. Contacting their customer service team should give you the opportunity to agree the steps you’ll take to make up the payment.

You can usually find their contact information by scrolling to the bottom of their website and clicking on something like ‘Contact us’.

If you think you might miss a payment, contact your lender as soon as possible to talk about your options.

Make the payment as soon as you can

If you’re able to make the payment, it’s a good idea to do it sooner rather than later.

The lender might charge you a missed payment fee – but they should contact you to let you know.

Set up automatic payments

To help you take control of your finances, it’s a good idea to set up reminders that tell you when a payment is due and to set up automatic payments. That way, you can feel more at ease knowing your payments are going through in the background.

If you miss a loan payment and it shows on your credit report, you could see a drop in your score. Rebuilding your score afterwards means making all further payments on time and in full – but it can take a while to see your credit score rise again.

If you want to reduce your loan payments, you should speak with your lender to see what your options are. If you’re having difficulty making the repayments, the lender might ask for proof that you can’t afford to pay – – like a budget that shows your essential outgoings (mortgage, bills, food, for example).

If they agree to reduced monthly payments, it will show on your credit report (in a similar way to a late or missed payment) and can impact your credit score.

The lender should also explain any change in interest or any additional payments added to your agreement (if you’re able to negotiate your original agreement).

It’s a good idea to speak to your lender and understand what options they can offer you. You might be able to freeze your loan payments or the interest.

Freezing payments or payment holidays

Sometimes, the lender can arrange for a payment holiday – which is just another way of describing a payment freeze. It means you wouldn’t have to pay for an agreed period of time (like a couple of months), while you take back control of your finances.

But if the lender doesn’t agree to, or can’t, freeze the interest, make sure you ask what the total amount you’ll need to repay will be, once the payment holiday ends.

Freezing interest on payments

The lender might agree to freeze the interest on your loan payments for a fixed period. It means you’d have to continue to make the repayments but the interest would pause – so the overall cost of the loan would reduce by a certain amount (depending on how long interest is paused for).

Freezing interest shouldn’t have an impact on your credit score. But defaulted or missed payments can negatively impact your credit score and stay on your credit report for about six years.

Debt consolidation means taking out a new loan to pay off your current debt. It could help you focus on one, more manageable payment. Your ability to get accepted for a new loan depends on your credit score and credit history – but if you have a bad credit score, you could still get a loan. Some lenders specialise in loans for people with no or a bad credit history – the interest rates might be quite high but it could mean you’re able to manage your repayments more easily.

If you can’t afford to repay your loan, you should reach out to the lender. They should refer you for independent debt advice, but you can also reach out to dedicated charities like National Debtline, StepChange, and Citizen’s Advice.

If you default on your loan – which means you’ve missed multiple payments in a row – your lender could take steps to recover the money. They might appoint a debt collection agency or begin legal action.

If you’re worried about repaying your loan, you can seek advice from various charities dedicated to supporting people experiencing financial difficulties.  You can go to charities like National Debtline and StepChange and ask one of their experts for guidance. You can also reach out to Citizens Advice.

If you have multiple lines of debt – like from a loan and credit card – it’s a good idea to work out what’s a priority. That means working out which one you should work to pay off first. Priority debt is usually something that impacts your ability to live your everyday life – like rent, utility, council tax.

You can also compare the interest rates and fees for each debt and use it to make a budget. If you need help with a personal budget, speak to the charities above.