Lenders that have closed or stopped lending: what happens to your loan

When a lender goes bust, stops writing new business or sells its loan book, the single most important thing to understand is that your debt does not vanish. The money you owe is an asset of the business, and whoever ends up running or owning that business, whether administrators, a buyer of the loan book or a debt collection firm, has every incentive to collect it. If you stop paying, you can still be taken to court and ordered to pay what you owe, often with extra costs on top¹.

What changes is who you pay and where you send questions or complaints. A failed lender's loans are typically either collected by the people managing the closure or sold on to another firm, and borrowers are usually told in writing when this happens. Your original credit agreement, with its interest rate, term and conditions, generally travels with the debt.

This page explains what happens step by step: what happens to your repayments and direct debits, who takes over, whether your rights survive the sale, what it means for car finance and buy now pay later, how to complain or claim compensation, where the FSCS does and does not help borrowers, and where to get free help if the debt has become a struggle.

Your loan does not disappear when a lender closes

A loan is a contract, and the closure of the lender does not tear that contract up. The debt becomes part of the failed firm's assets, and the people winding the business up have a duty to its creditors to realise those assets, which means either collecting the loans over time or selling them to someone else who will. That is why the first letters many borrowers receive after a lender fails are not apologies but new payment instructions.

The consequences of stopping payment are the same as they ever were. Guidance on bank debts is blunt on this point: you might not lose your home for not paying unsecured debts, but you can still be taken to court and ordered to pay what you owe, often with extra costs on top¹. A lender's collapse is not a legal route out of the debt, and treating it as one usually makes matters worse, because arrears, default notices and court action can follow just as they would have before.

There are circumstances in which insolvency touches a borrower directly, and they are worth separating out. If it is the borrower who enters bankruptcy, in Scotland the Accountant in Bankruptcy notes that bankruptcy has a big impact on your credit score and stays on your credit file for six years, and that if you pass away while bankrupt the process continues, with your estate used to pay trustee fees and outlays⁶. Your details appear on a public register, and if you do not comply with your trustee, they may remain on the register for longer⁷. These rules are about your own insolvency, not the lender's, but they matter here because a failed lender and a bankrupt borrower can end up in the same insolvency process, which affects who receives any compensation due, as explained later in this page.

What happens to your repayments and direct debits

In the short term, the practical question is what to do with the payment you have already set up. If you pay by direct debit, the arrangement is with your bank, not directly with the lender, and it can continue to be collected under the new arrangements once you have been told about them. Direct debits are covered by the Direct Debit Guarantee: if the bank, or an organisation you are paying, makes a mistake, your bank must refund the payment to you². That protection follows the payment method, so it does not disappear because the money is now going to a different recipient.

Two cautions apply. First, keep enough money in the account: bounced direct debits and standing orders can leave you facing heavy bank charges, so it is worth checking the balance around payment dates, especially if the payment date or amount has changed hands⁸. Second, do not cancel a direct debit in the belief that the debt has gone away. Cancelling the payment cancels the payment, not the obligation, and the arrears will build up just the same.

Some direct debits cancel themselves automatically when the arrangement they relate to ends. DVLA, for example, states that if you pay vehicle tax by direct debit and the vehicle is removed from the register, the direct debit will be cancelled automatically⁹. A loan is different: the tax relates to the vehicle, while the loan relates to you, and it continues until it is settled. If you are unsure whether a payment should still be leaving your account, ask the new holder of the debt for a statement of what is owed before changing anything, and keep records of every conversation.

Who takes over your loan: administrators and buyers of loan books

When a lender fails, an insolvency practitioner, often called an administrator, is appointed to run what is left. The Financial Services Compensation Scheme describes the role in similar terms for failed insurers: their main job is to handle the financial management of the failed company, including collecting and selling company assets to repay the people and firms the business left out of pocket, its creditors¹⁰. Borrowers are on the other side of that ledger: the loan you owe is one of the assets being collected or sold.

Loan books are regularly sold between healthy firms too, not just failed ones, so a letter announcing that your loan has been sold is not in itself a sign that anything has gone wrong. What the sale changes is the address you send money to and the firm you deal with for statements, settlement figures and complaints. What it does not change, in the ordinary case, is the substance of the agreement.

The end of the road for a firm that cannot pay its debts is a formal insolvency. The FSCS explains its own trigger in these terms: once it is satisfied that a firm is unable, or likely to be unable, to pay claims against it, it declares the firm in default, which opens the way for the firm's customers to make a claim for compensation¹³. For borrowers, the parallel process is that the firm enters administration or liquidation, and its assets, including your loan, are dealt with by the appointed practitioner. If you are owed money by a failed firm rather than owing it, the government sets out the escalation route: a statutory demand can be served, and if it is ignored or the money cannot be repaid, you can apply to a court to make someone bankrupt or get a company wound up¹⁴.

Your rights after a loan is sold

The rights you had against the original lender generally travel with the debt. That is easiest to see with secured lending: on a secured loan, the lender can take your asset and sell it if you cannot repay, and that right belongs to whoever holds the loan, not to the firm that first granted it¹⁵. The same principle works in the borrower's favour: the protections built into your agreement, including those under the Consumer Credit Act, continue to apply.

One example is the right to withdraw from certain agreements. Under the Consumer Credit Act, where a debtor withdraws from a conditional sale, hire-purchase or credit-sale agreement after the credit has been provided and the sum payable is paid in full, title to the goods passes to the debtor on the same terms as would have applied had the debtor not withdrawn¹⁶. The legislation repeats this for the withdrawal provisions generally: title to the goods purchased or supplied under the agreement is to pass to the debtor on those same terms¹⁷. A new owner of the debt cannot strip out statutory rights like these when it buys the book.

Payment protections also survive. Under the payment services regulations, where an unauthorised payment transaction has taken place, the payer's bank must refund the amount of the unauthorised payment and, where applicable, restore the debited account to the state it would have been in had the transaction not taken place¹⁸. That obligation sits with the payment institution, not with the lender, so a lender changing hands does not affect it.

Overpayments are a common worry when servicing moves between firms. The Student Loans Company process gives a model for how these are handled elsewhere: where a loan has been repaid but deductions continue, the borrower writes to the lender enclosing wage slips to show the extra deductions, and overpayments are refunded with interest¹⁹. Where a new servicer has double-collected or misapplied a payment, the same route is open: the matter is put in writing with the evidence attached, and the Financial Ombudsman Service can be approached if it is not put right.

Where a complaint about the loan itself is upheld, the ombudsman's standard redress shows how payments already made are treated. Where a borrower was unfairly provided with credit and lost out, the ombudsman typically says the lender should refund the interest and charges their customer has paid, with interest²⁰. Where the loan is still running, the approach is usually to tell the lender to remove all the interest and charges applied from the start, so that a new starting balance consisting of only the amount lent is left, and then deduct any payments already made²⁰. The 14-day right to withdraw and your rights under the Consumer Credit Act are covered in full on their own pages.

Car finance, hire purchase and leases when the lender stops trading

Car finance needs its own section because the type of agreement determines what the lender, or its successor, can do. StepChange sets out the differences plainly. With a personal loan used to buy a car, the loan provider cannot take the car back if you miss payments: the debt is unsecured, and the car is yours²¹. With hire purchase, conditional sale, or a lease or hire agreement, the finance company owns the vehicle during the agreement, which means you cannot sell it without the finance company's permission, a restriction that also applies to lease or hire agreements, and the finance company can take the car back if you miss payments²¹. With a logbook loan, you can still use your vehicle, but the lender takes ownership of it from the start of the loan until it is paid back, and can take and sell the vehicle if you do not repay; you cannot sell the car while the loan is outstanding²².

None of this changes when the lender stops trading. The new holder of a hire purchase book has the same rights and the same restrictions as the original firm. What borrowers should expect is the same process for arrears: the lender will contact you after you miss one or two payments and should discuss ways to catch up and pay the arrears; if you keep missing payments they may issue a default notice, then take further action to collect the debt and recover the car, possibly using a debt collection agency or applying for a county court judgment²¹.

If you were mis-sold the finance, a lender's closure does not end the matter. The FCA publishes a list of lenders within its motor finance complaints work, and suggests practical ways to identify who your lender was: check old bank statements, contact the dealer where you got the car, or check your credit file, which you can access for free through Experian and TransUnion²³. The Financial Ombudsman can consider complaints about motor finance commission, though it notes that where the FCA's motor finance redress scheme applies, it will only be able to look at whether your lender followed the scheme rules²⁴. The FCA gave lenders until 31 May 2026 before they start responding to certain complaints involving motor commission, and parts of the redress scheme were suspended from 2 July 2026 pending a legal challenge by several lenders before the Upper Tribunal, with lenders not required to calculate or pay compensation until that process concludes. The dedicated pages on the motor finance redress scheme and on complaining about a lender carry the detail.

Buy now pay later after a provider closes

Buy now pay later (BNPL) is a way of spreading payments, interest free, for something you buy over a short period of time²⁵. Because most BNPL plans are short and interest free, the amounts at stake when a provider closes are usually smaller than with a personal loan, but the principle is identical: the plan is a debt, and it will be collected or sold like any other.

The regulatory position changed recently. The FCA began regulating Deferred Payment Credit, the formal name for BNPL lending, on 15 July 2026, requiring lenders to be authorised or in the temporary permission regime and to follow its rules²⁶. That matters for borrowers whose provider closes, because authorised firms are within the FCA's rulebook and, in defined circumstances, within the ombudsman's reach. The FCA's own guidance for borrowers is to check a firm on the FCA register before using it, selecting the borrowing permissions and checking the firm is authorised to lend money on an unsecured basis²⁶.

If a BNPL provider stops trading, the practical steps are the same as for any lender: wait for written confirmation of who now holds the plan, keep up the scheduled payments unless told otherwise, and use the Direct Debit Guarantee or your card protections if a payment goes wrong. If you have a complaint, the ombudsman can tell the lender to put things right if it thinks you have lost money, and may also tell them to pay compensation for distress or inconvenience²⁵. The pages on buy now pay later and BNPL regulation explain the product and the rules in full.

Complaints and compensation claims against a lender that has closed

A closed lender is not necessarily a closed complaint. Complaints about lending are among the volumes the Financial Ombudsman handles: its data for the first quarter of 2026/27 records 2,103 complaints opened about personal loans²⁷. The ombudsman's powers are the same whoever holds the debt: it can tell the lender to put things right, and if you are insolvent it may say the business needs to pay the compensation from your complaint to the trustee or practitioner of your insolvency arrangement²⁸.

Where a broker was involved, the rules on routing matter. Under the FCA's complaints rules, where a credit broker receives a complaint in relation to the subject matter of the scheme, it must forward the complaint to the lender and inform the consumer that it has been forwarded²⁹. So if the firm you dealt with was a broker rather than the lender, your complaint should still reach the right destination, even if the lender has since closed or been sold.

Bankruptcy cuts across redress in ways that catch people out. The ombudsman's approach to mis-sold PPI redress explains the general position: when a consumer enters bankruptcy, their assets, including any right to compensation for a mis-sold policy, pass to the trustee in bankruptcy³⁰. And where the complained-about business also has a claim in the bankruptcy, it will have a legal right to set off any redress against arrears on its debt³⁰. The government's guidance on motor finance mis-selling and the Official Receiver applies the same logic to car finance: if you have already made a claim, you must tell your lender about your bankruptcy, and if you took out the finance agreement after your bankruptcy ended, or your bankruptcy was annulled by the courts, you have the right to make the claim and keep the compensation awarded³¹. Before settling any claims, lenders should check their own records and complete an insolvency search on The Gazette, and any money due in redress should be held for the Official Receiver³¹.

If the firm has failed and cannot pay, the FSCS may step in. Once the FSCS is satisfied that a firm is unable, or likely to be unable, to pay claims against it, it declares the firm in default, opening the way for the firm's customers to make a claim for compensation¹³. Whether that helps with a lending complaint depends on what the claim is about, which is the subject of the next section.

Where the FSCS does and does not apply to borrowers

The Financial Services Compensation Scheme is the UK's compensation fund of last resort. It can pay compensation if your financial services provider fails and cannot pay back your money itself⁴, and it covers a range of products when a UK-authorised firm fails, including deposits, insurance, investments, pensions, mortgage advice and certain other regulated services³.

The critical point for borrowers is what FSCS protection is not. It protects money you hold with a firm, not money you owe it. If your bank, building society or credit union has failed, you do not need to make a claim: the FSCS returns your money automatically, up to its compensation limit³². That is about the balance in your account, not your loan with the same institution. NS&I puts the everyday version of the promise plainly: if your bank goes bust, you will automatically get your money back³³. Nothing in that promise reduces a debt you owe the failed bank; the loan book is still an asset, and it is still collected or sold.

The boundaries are worth knowing in detail:

• Deposits are protected; loan balances are not. FSCS protection applies to money held with regulated UK banks and building societies, not to the amount outstanding on a borrowing³.
• Debt management and IVAs sit outside it. The FSCS states it does not protect money that a debtor pays under an individual voluntary arrangement arranged by insolvency partners, which are not regulated by the FCA, or debt advice³⁴.
• Payments firms are a special case. Under the FCA's policy, the FSCS may look through a payments firm to compensate its customers if the firm's UK safeguarding bank fails, but it does not cover cases where the payments firm itself fails³⁵.
• Some claims are simply not eligible. The FSCS lists categories of claim that are not eligible for protection, and its coverage pages set out the boundaries product by product³⁶.
• Some protections are narrow and specific. Holders of an authorised funeral plan from a provider that has failed are protected where arrangements with a new regulated provider are not in place, and in most circumstances those customers will not need to make a claim, as the FSCS works with the failed firm, the FCA and the insolvency practitioner³⁷.

For borrowers, the practical upshot is this: FSCS helps if you were a customer of the failed firm in a protected capacity, for example holding deposits or having received bad mortgage advice that is covered³⁸, but it does not pay off your loan because the lender failed. The loan survives, and so does your obligation to repay it.

How to check a lender's status on the FCA register

The FCA register is the public record of who is authorised to do what in UK financial services. You can check whether a provider or adviser is authorised by the PRA or FCA on the register⁴, and the register shows what a firm is allowed to do and whether it is still trading³⁹. For a borrower whose lender has closed or whose loan has been sold, that second function is the useful one: it tells you whether the firm contacting you exists and holds the permissions it claims.

The FCA's guidance for borrowers sets out the steps: search the firm by name, select the borrowing permissions, and check that the firm is authorised and has permission to lend you money on an unsecured basis²⁶. Searching by the firm's reference number gives the most accurate results, which is why the register is best used once you have the details from a letter or agreement⁴⁰. The same check works for brokers: make sure the broker you use is on the FCA's Financial Services Register, which means they are authorised and regulated by the FCA⁴¹.

A few related checks are worth making:

• Payday lenders must be authorised. Payday lenders must be authorised by the FCA, which publishes a list of licensed lenders on the register⁴².
• Unauthorised lenders are illegal lenders. A loan shark is the common term for an illegal money lender, in effect a money lender who has not been authorised by the FCA⁴³. If a firm chasing your old debt cannot be found on the register, treat it with suspicion and see the page on loan sharks and illegal money lending.
• For car finance, identify the lender first. Check old bank statements, contact the dealer where you got the car, or check your credit file, which you can access for free through Experian and TransUnion²³.

If you cannot find the firm at all, that may mean it has been renamed, sold or wound up, and the administrators' correspondence is the trail to follow. The page on direct lenders and brokers explains the difference between the firm that lends and the firm that merely arranges.

Credit files when a lender closes

A lender's collapse does not itself change your credit file. What the file records is the loan and how it is repaid, and that continues under the new holder of the debt. The ombudsman's guidance on mortgage difficulties draws the line borrowers most need to know: discussing your options with your lender will not have any impact on your credit file, for example, but if you have already missed payments, any help you receive will impact your credit file⁴⁴. The same distinction appears in its guidance on interest rates: talking to your lender about your options does not affect your file⁴⁵.

So the sequence matters. If you see news that your lender has failed and you are worried about affording the payments, contacting whoever now holds the debt before you miss one keeps the conversation off your file. Waiting until arrears have built up means any arrangement that follows is recorded.

Two neighbouring points are worth flagging. Guarantors should know that being a guarantor will not affect your credit rating as long as the borrower pays back the debt on time, but payments made on their behalf are added to your credit history and could reduce your credit score⁴⁶. And if the borrower is the one in insolvency, in Scotland bankruptcy stays on the credit file for six years⁶. The page on how loans affect your credit file covers the ordinary mechanics.

Where to get free help with debt and a failed lender

A failed lender can leave borrowers with practical problems: who to pay, whether an old arrangement still stands, and what to do if the debt has become unaffordable. Free, independent help exists and is worth using before paying anyone for it. The FSCS signposts borrowers who are having trouble repaying money they owe to free debt advice from StepChange, Which? and Citizens Advice⁵.

When to reach for what:

• Struggling with the payments. Free debt advice from a charity such as StepChange or Citizens Advice, or MoneyHelper, can talk through budgets and options⁵. The page on what to do if you can't repay a loan sets out the steps.
• Facing legal action or repossession. Guidance is direct: when faced with repossession, contact your solicitor or a free advice agency⁴⁷. Some schemes build the signposting in formally; Help to Buy Wales refers customers in arrears experiencing financial difficulties to a source of free and independent debt advice⁴⁸.
• The borrower has died. If the person was repaying student loans, contact the Student Loans Company, and the Tell Us Once service handles the wider notifications to government⁴⁹. The page on car finance when the borrower dies covers that specific case.
• Someone contacts you claiming the loan is theirs. Verify before you pay: check the firm on the FCA register, ask for written confirmation, and confirm the debt with the original lender or its administrators. The page on upfront fee scams and the guide to scams and fraud cover the warning signs.

The general rule across all of it: the debt is real, the protections are real, and both survive the lender's closure. Keep paying as instructed once you have verified who to pay, keep records, and use the free help that exists before the arrears build.