Your options when you can’t make your payments
What options are available to you when you’re having trouble making your bad credit loan payments? First of all, you have to 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 you can’t, no matter how hard you try.
Remember you are not alone. The Daily Mail recently reported that 28,000 people had contacted a charity to help them settle their payday loan debts.
Recognize your financial problem
When you recognize your financial problem, the repair begins. Just like you’re at work and you don’t know how to do something. You don’t just sit there worrying – you ask for help.
The same goes for borrowers when you’re having trouble paying and can’t pay off your debt.
Lenders appreciate when a borrower who cannot repay a loan contacts them to let them know. If you recognize your financial problem and call the lender about it, they will want to help you.
You don’t have to struggle alone. When you recognize your financial situation, it’s good for you too. Talking about your problems with friends and family means that you don’t have to carry the burden alone.
Tell your creditor that you are in financial difficulty
The first thing to do is to let your creditor know that you are in financial difficulty. The minute you realize you’re too deep and you’ve taken too much is the minute you should contact them.
If you’ve taken out financing and you don’t let your creditor know you’re in financial trouble, they can’t help you. But maybe surprise you that there are certain rules and guidelines that they must follow.
These rules and guidelines are in place to help you when you’re having trouble paying and can’t pay off your debt.
There are many ways to let your creditor know about your financial difficulties. Lenders we spoke to suggested the best way to contact them was by phone.
It’s much more personal than doing it by email, online contact form, or post. You are on the phone with a customer service employee who can contact you individually.
The customer support worker you talk to is part of a specially trained team. They work every day with clients who have payment problems.
Customer service employees are there to help you plan. You will tell them that you don’t see how you can make the next loan repayment. Their job is to listen to you and work with you to work out a plan to pay off your loan without causing further difficulty.
How Your Lender Can Help You Pay Off Your Debt
As we mentioned earlier, there are several ways your lender can help you with your debt.
There are three main ways you should expect to hear, which we’ll cover next.
Put your account on hold for 30 days
Many short-term credit providers will first offer to block your account for 30 days.
If they suspend your account for 30 days, you get additional leeway as a borrower. If you’ve taken out a personal loan, it’s another 30 days to find the money you need.
What if you had taken out short-term financing to repay over 2 to 12 months? Then, they can set back 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 put your account on hold for 30 days, they won’t call you to demand repayment.
Extend your repayments for longer
For borrowers in difficult circumstances, your lender may extend your repayments longer. If you have a loan until payday, that could mean paying it off in two or three smaller installments. Customers with short-term loans may have their repayments extended for longer.
Here is an example.
You may have borrowed Â£ 500 for more than 6 months.
If your lender offers to extend your repayments, they could extend the loan to 9 months instead. 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 can freeze your interest.
When a lender decides to freeze your interest, no additional fees will accrue. Your lender recognizes that you are in trouble 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 their job and there is no guarantee when they will be paid? Lenders allow you to make small payments until your finances are restored.
When talking to your customer assistant, explore all the options and never be afraid to ask questions.
Understand your rights and responsibilities before contacting a lender
The Financial Conduct Authority governs 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 client assistant. It can help you try to achieve the best and most manageable outcome for you.
Responsibilities of the lender when approving a high cost loan
Due to FCA rules, lenders have specific responsibilities when approving personal finances. Each lender must follow these rules to keep their license and operate legally.
The three main rules are:
- They cannot charge more than 0.8% interest per day (i.e. Â£ 24 for every Â£ 100 borrowed)
- Lenders should never charge more interest costs than the amount borrowed. So if you have borrowed Â£ 500 you will never repay more than Â£ 500 in interest and charges on top of the Â£ 500 you have taken out.
- A lender is not allowed to charge you a default fee greater than Â£ 15. You might have to pay a default fee if you miss a repayment date, for example.
The reason they are in place is to make sure that the money is only loaned to people who can afford to pay it back.
Responsibilities of lenders when you have difficulty repaying
There is a different set of lender responsibilities when you are having trouble repaying.
If you can’t pay off your loan, it’s a stressful time. When you’re having trouble paying back, the rules are there to protect you.
The main rules to know are as follows:
- Your lender should direct you to free, independent debt counseling and counseling services.
- They shouldn’t be trying to collect the debt while you are figuring out how to pay it off. You can find out how to do it on your own or you can get help to do 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 goodwill gesture. And those small payments don’t have to make paying your regular bills harder.
When you applied, you would have agreed that your refunds would come from your bank account through something called a Continuing Payment Authority (CPA). If your lender unsuccessfully tries 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 that’s left in your account. To do this, you will need to contact your bank. 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 still be unpaid if you cancel the CPA.
Points of contact when you find yourself in unmanageable debt
You can turn to many advisers and professionals. But choosing the best contact points depends on:
- The type of debt you have
- The amount of money you owe
- Your personal situation.
If you fall behind on your repayments, your lender will refer you to one of the debt counseling services.
Debt counseling staff will tell you how many ways you can deal with debt that has become too much for you. They will even contact the lenders and negotiate the debt repayment on your behalf.
Their goal is to reduce the amount you pay each month to take some of the pressure off.
Here are a few counseling service websites you can contact for assistance:
If your debt is large and spread across multiple accounts, you may want to consider the following:
How to Always Track Your Loan Repayments
There are steps you can take to help you meet your loan repayments. Sometimes this will be enough to keep you from falling behind on refunds. Despite your best efforts, sometimes you can still struggle after taking these steps.
Creating a monthly budget should be part of any plan for how to consistently track your loan payments. Log into your online banking and see 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 in the morning, you could save Â£ 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 on how to make sure you still pay off your loans. If you are not sure if you can repay a loan, you should not take one as it will only make your problems worse down the road.
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.