What Happens When a Borrower Fails to Repay a Loan?

Before you can take out a loan from a major lender, that lender will usually perform a credit check on you, to make sure that you are able to repay that debt.


The check could be through one of the major credit reference agencies or through their own personal systems. Most lenders use a combination of both sets of records to qualify a borrower. Even people who have good credit ratings sometimes fail to repay their debts, however. Those people may fall ill, lose their jobs, go through a divorce, or experience other changes in their circumstances.

When someone misses multiple payments, they are considered to have “defaulted” on a loan. To the lender, that debt becomes a “bad dept”.

What Does Defaulting on a Loan Mean?
If you default on a loan, then you will face two potential consequences. Firstly, the default will be registered with the main credit reference agencies. This means that your credit score will fall dramatically.

Having a low credit score means that you will find it much harder to take out other loans in the future. Secondly, if you fail to repay loan amounts secured against something such as a car or your house, then the lender can petition to repossess that property.

What Should I Do If I Am Struggling to Make Payments?

If you have purchased an item on finance and are struggling to make payments, it is important that you are proactive. Most lenders will work with borrowers to find ways to restructure a loan so that they can still pay off their debt in a reasonable period of time.

Even with unsecured debts, it pays to communicate early. If you contact the lender as soon as you realise you are in danger of missing payments they may be able to help you get back on track.