Your options when you can’t make your payments
What options do you have when you’re struggling to make your payments on a bad credit loan? First, you must admit that there is a problem for yourself.
No doubt you’ll try to think of as many different ways to repay as possible, but sometimes it’s not possible no matter how hard you try.
Remember you are not alone. The Daily Mail recently reported that 28,000 people have contacted a charity to help them settle their payday loan debt.
Recognize your financial problem
When you recognize your financial problem, that’s the beginning of problem solving. Just like if you are at work and you don’t know how to do something. You don’t just sit there worrying – you ask for help.
It’s the same principle for borrowers when you’re stuck with payments and can’t repay your debt.
Lenders appreciate that a borrower who cannot repay a loan contacts them to tell them. If you recognize your financial problem and call the lender about it, they want to help you.
You don’t have to fight alone. When you recognize your financial situation, it’s good for you too. Talking about your problems with friends and family means you don’t have to bear the burden alone.
Let your creditor know that you are in financial difficulty
The first thing to do is let your creditor know that you are in financial difficulty. The minute you realize you’ve gotten too involved and taken on too much is the minute you need to reach out to them.
If you have taken out financing and you do not let your creditor know that you are in financial difficulty, they cannot help you. But you may be surprised to learn that there are certain rules and guidelines they must follow.
These rules and guidelines are in place to help you when you are having difficulty with your payments and cannot repay your debt.
There are several ways to let your creditor know that you are having financial difficulty. The lenders we spoke to suggested the best way to contact them was by phone.
It’s much more personal than doing it via email, online contact form or post. You are there on the phone with a customer service employee who can contact you individually.
The customer service employee you speak to is part of a specially trained team. They work every day with customers who are struggling to pay.
What customer service workers are there to help you plan. You will tell them that you do not see how you will be able to make the next repayment of your loan. Their job is to listen to you and work out a plan with you to pay off your loan without causing you additional hardship.
How your lender can help you settle your debt
As mentioned earlier, there are several ways your lender can help you settle your debt.
There are three main ways you should expect to hear, which we’ll cover next.
Put a 30 day hold on your account
Many short-term credit providers will initially offer to suspend your account for 30 days.
If they suspend your account for 30 days, you get extra leeway as a borrower. If you took out a personal loan, that’s an extra 30 days to find the money you need.
What if you have contracted short-term financing to repay over 2 to 12 months? Then they can extend your repayment dates for another 30 days. This is how you have a chance to recover financially before resuming your repayments.
When a lender chooses to suspend your account for 30 days, they will not call you to demand a refund.
Extend your repayments longer
For borrowers facing difficult situations, your lender may extend your repayments longer. If you have a loan until payday, this may mean paying off in two or three smaller installments. Customers with short-term loans may have their repayments extended longer.
Here is an example.
You may have borrowed £500 for over 6 months.
If your lender offers to extend your repayments, they may instead extend the loan to 9 months. Please note that if this is the case, they may charge more interest and default fees.
Freeze your interest
Every lender is different and if they give you more time to pay off your loan, many may freeze your interest.
When a lender makes the decision to freeze your interest, no additional fees will accrue. Your lender recognizes that you are in difficulty and does not want to add more. They recognize that you want to pay them back and they are happy to give you the opportunity to do so.
What if a borrower loses his job and there is no guarantee when he will be paid? Lenders allow you to make small payments until your finances are on track.
When talking to your customer support agent, explore all options and never be afraid to ask questions.
Understand your rights and responsibilities before contacting a lender
The Financial Conduct Authority regulates all loan companies in the UK. Every lender and broker needs a license before they can offer financing. If you know the rules they must follow, you can understand your rights before contacting them.
When you understand your rights, you are better prepared to deal with your customer support agent. This can help you try to achieve the best and most manageable result for you.
Responsibilities of the lender when approving a high cost loan
Due to FCA rules, lenders have specific responsibilities when approving personal finance. Every lender must follow these rules to maintain their license and operate legally.
The three main rules are that:
- They can’t charge more than 0.8% interest per day (that’s £24 for every £100 you borrow)
- Lenders should never charge more interest charges than the amount borrowed. So if you borrowed £500, you will never repay more than £500 in interest and fees on top of the £500 you borrowed.
- A lender is not allowed to charge you a default charge of more than £15. You may have to pay a default fee if you miss a repayment date, for example.
The reason they are in place is to ensure that money is only loaned to people who can afford to repay it.
Responsibilities of lenders when you are having difficulty repaying
There is a different set of lender responsibilities when struggling with repayments.
If you can’t repay your loan, it’s a stressful time. When you’re fighting refunds, the rules are there to protect you.
The main rules you need to know are:
- Your lender should refer you to independent and free debt advice and counseling services
- They shouldn’t try to collect the debt while you figure out how to pay it off. You can figure out how to do it yourself or you can get help doing it
- They must treat you fairly and give you a reasonable time to repay the loan
- They should not make multiple attempts to contact you
- They should view an offer to make small payments as a gesture of your goodwill. And these small payments should not complicate the payment of your normal bills
When you applied, you would have agreed that your reimbursements would come from your bank account through what is called a Continuing Payment Authority (CPA). If your lender tries unsuccessfully to accept payment using CPA twice, legally they are not allowed to try again.
You can cancel your CPA if you’re trying to protect the money left in your account. You will need to contact your bank to do this. It’s always best to contact your lender to let them know you’ve done this.
Please note that your debt to the lender will remain unpaid if you cancel the CPA.
Touchpoints when you find yourself in unmanageable debt
There are many advisers and professionals you can turn to. But choosing the best touchpoints depends on:
- The type of debt you have
- The amount of money you owe
- Your personal situation.
If you are falling behind in your repayments, your lender will refer you to one of the debt counseling services.
Debt counseling staff will explain the many ways you can deal with debt that has become too much for you. They will even contact lenders and negotiate debt repayment on your behalf.
Their goal is to reduce the amount you pay each month to relieve some of the pressure.
Here are some counseling service websites you can contact for help:
If your debt is large and spread across many accounts, you might consider the following:
How to always track your loan repayments
There are steps you can take to help you keep up with your loan repayments. Sometimes that will be enough to keep you from falling behind on refunds. Despite your best efforts, you may still struggle sometimes after taking these steps.
Creating a monthly budget should be part of any plan on how to consistently keep up with your loan repayments. Log in to your online bank and check how much money you get paid each month and how you spend it.
You may want to consider switching to cheaper insurance and utility providers. Or downgrade your TV subscription.
Instead of buying coffee from Starbucks first thing in the morning, you could save £15-20 a week by brewing your own coffee.
Ideally, you should do this before taking out a loan. You may find that over time you can build up a savings fund to deal with emergencies.
If you still need to take out a loan, you need to be clear about how to always track your loan repayments. If you’re not sure you can repay a loan, you shouldn’t take one as it will only increase your problems later.
Finding yourself unable to repay a loan is a stressful situation. No one likes being sued for money they can’t afford to pay back.
It is always best to face this situation head on. Be proactive and contact your lender as soon as you realize you’re going to have a problem.