Loan Default: What Happens if You Can’t Pay Your Loan?

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Debt is something that none of us want in our lives, however, it happens. If you are fortunate to have never found yourself in debt, or struggling to repay a loan, but want to educate yourself on it, then check out CreditNinja explains Personal Debt, to help you understand.

However, if you are in the unfortunate position where you owe money, but are struggling to pay off your loan, and now you need to figure out what to do, we have some answers for you.

Being unable to pay back a loan is frustrating, but it also comes with consequences that affect your financial future.

Paying back a loan doesn’t only get the stress off your back, but it also helps you to get a better credit score.

What Happens If You Can Not Pay Your Loan?

Typically, it will take around 30 days for a missed payment to show up on your credit report. If you manage to make your full payment before that 30-day period is up, then the missed payment may not be reported to the credit reference agency.

However, if this does not happen, and you are unable to pay off your loan, then there are many different ways that you may suffer for it.

Firstly, your credit score would go down. If the payment is added to your credit report, then you are likely to see a reduction in your credit score. If this does happen, try not to worry too much, as there are ways that you could improve your score once again if this does happen.

In some cases you may also have to pay a late fee, some lenders will require you to pay a late fee for missed payments.

You may also default on your loan, however, this will only happen if you cannot make any payments consecutively. The lender may decide to take steps to recover this missing money from you. They could contact a debt collection agency or legal actions could be taken.

What Should You Do If You Can’t Pay?

If you are struggling to pay, and you are aware of it and want to take steps to avoid problems, then there are some things you can do to help.

Firstly, inform your lender. Let them know that you are aware of a missed payment on your loan, and if you can contact their customer service, you should be able to agree to the steps you can take to make the payment.

The best thing you can do is make the payment as soon as you possibly can. It is better to pay off this debt sooner rather than later. The lender may charge you a missed payment fee, however, if this is the case they should inform you of this.

A great way to take financial control is to set up automated payments. This will ensure the money will come out of your account, and when a payment is due and set up, you can even set reminders to notify you that you have a payment coming out.

This lets you feel more at ease that your payments are going through, even if you are not monitoring them.

If you are worried about being able to repay your loan, then you could seek out advice from charities that can help those who have financial problems.

Citizens Advice bureaus can also help!

Do Missing Loan Payments Impact Your Credit Score?

Missing loan payments will impact your credit score, if the payment was not made within the 30 days it usually takes for these missed payments to end up reported then it will end up on your credit score.

A missed payment will appear on your credit report and your credit score, and this will stay in place for 7 years, while you can build your credit back up after this, lenders will be able to see that you missed a payment for 7 years or so.

Types Of Notices That May Appear On Your Credit File

If you happen to miss multiple payments, there are multiple notices that may show up on your credit file.

Often, if you miss anywhere from 3 to 6 payments on a loan, the lender will send you a letter, explaining which terms you have broken, and what the next steps will be. They will also inform the credit reference agency and your credit report will show a default notice.

You can even get CCJs as well if your lender decides to take legal action to recover the money. These can have a massive impact on your credit score, and they can even stay on your report for up to 6 years, affecting your ability to get credit in the future.

You can also get an IVA, which is an agreement between your lender and yourself, in which you agree to pay back this debt over an agreed period. The lenders should freeze the interest and you shouldn’t be chased for the debt.


While it can happen, it is best to avoid defaulting on a loan at all costs. It can cause a lot of problems. If you think you may miss a payment, talk to your lender about alternatives.

Jenn Leach, MBA

Jenn Leach is a Houston-based MBA with over a decade of experience in the banking industry. She writes at Millennial Nextdoor where she writes finance, money, business, and lifestyle content to help millennials create additional income streams online. Join her on Substack at

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