What happens if you fail to repay a loan?

Introduction

Some of the most frequently asked questions in the loan space regard repayments. As a crucial part of the process, it’s no wonder that borrowers want to understand all the facts. In this article, we answer some more of the common questions asked about loan repayments, to give you a better understanding of the process.

What happens if you fail to repay a loan?

If you’re struggling to make the repayments on your personal loan, you can contact your lender to request them to put them on hold. Lenders appreciate the fact that you get in touch with them before missing repayments and are required to consider your request to freeze your loan repayments.

They might offer to freeze your repayments for a specified period of time, or they might freeze the interest payments that you’re required to make. Some lenders also offer short repayment holidays, which could be a viable solution while you get yourself back on your feet. Ultimately, the reason that you give for struggling with your repayments will influence your lender’s decision.

It’s best to be open and honest about your reasons for struggling with your repayments. Whether you’ve recently lost a source of income or have had to take some time off work due to illness, be transparent about your reasons for getting in touch. While a lender might not necessarily agree to your request, they’re more likely to freeze your repayments if they fully understand your personal circumstances.

It’s important to understand that if you fail to repay a loan and you do not contact your lender, you may be charged a late payment fee for the missed payment. If you continue missing payments without discussing this with your lender you may be taken to court and be issued with a county court judgement (CCJ).

A CCJ is a court order registered against you, stipulating that you owe a creditor money. You will be required by the court to pay the money back to the creditor or the company that has purchased your debt. The court will detail new repayment terms, and you can work with the solicitors to come to an agreement on more affordable payment terms.

If a CCJ is issued against you, it will be recorded on a public register, and it will appear on your credit file. This will then make it much more difficult to apply for credit in the future. So, if you’re struggling to repay your loan, speak to your lender and look for solutions that are realistic and helpful.

Is loan repayment taxable income?

In the UK, a personal loan is not normally tax-deductible. Therefore, the repayments that you make on your loan are not taxable either. In most instances, you’re not required to include details of your loan repayments on your tax return.

The reason that a personal loan is not taxable is that it is not a permanent source of income, and you are required to pay the money back with interest. This is different to your salary and other forms of personal income that you keep. There could be some instances in which loans are taxable, but you should speak to your accountant if you think you might have to declare a personal or business loan on your tax return.

Applying for a personal loan can be a good way of supplementing your annual income without affecting your tax requirements for the year. However, you should be mindful that you can afford the repayments on the personal loan in the future and check the eligibility requirements stipulated by the lender before submitting an application. 

What to do if you can’t repay a loan?

As your personal finances can change at any time, you might find yourself suddenly unable to meet your loan repayments. When you’re struggling with your loan repayments, the first thing you should do is to contact your lender directly.

Lenders are required to consider freezing your loan repayments if you’re unable to meet them, but it’s important that you’re honest and transparent about your reasons.

It’s really important that you don’t just stop making your repayments, as this will affect your credit score in the long run. It may also lead to a county court judgement (CCJ), which will appear on your credit file and make it difficult to access future credit. Another option is to seek debt advice from a charity like StepChange, as they can offer free advice on how best to manage your current financial circumstances.

Have you still got some unanswered questions about loan repayments? Make sure to get in contact with us at Koyo Loans – we’d love to hear from you.

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