What to do if you can't repay a loan

Missing a loan repayment is not something to sit out and hope nobody notices. The Bank of England is blunt about the consequence: failing to pay debts, whether secured or unsecured, can affect your credit rating¹. Arrears build up when one or more monthly payments have not been made, as the government's own guidance on Help to Buy equity loan arrears puts it². The earlier you act, the more options you have, because a lender that hears from you before the debt has spiralled can usually do more for you than one that hears from you after months of silence.

The danger of delay is sharpest with high-cost short-term credit. With payday or pay cheque loans, if you cannot repay the full amount in time then the loan rolls over, your debt escalates and you could get into serious financial difficulty³. A single missed payment on a personal loan is recoverable; a rolled-over payday loan can double in weeks.

This page explains what happens after a missed payment, the arrangements lenders can consider, where to get free debt advice, and how the Breathing Space scheme can freeze interest and stop enforcement for up to 60 days while you sort out a longer-term plan.

Missing a loan repayment: what happens and why acting early matters

A missed repayment does not trigger immediate legal action, but it starts a clock. The payment becomes an arrear, the arrears grow with each missed instalment, and the lender will contact you, first to collect and later, if nothing changes, to discuss recovery. Failing to pay debts, whether secured or unsecured, can affect your credit rating¹, which in turn makes future borrowing harder and more expensive. The dedicated guide to how loans affect your credit file covers the mechanics.

The speed at which trouble compounds depends on the type of loan. With a payday or pay cheque loan, if you cannot repay the full amount in time then the loan rolls over, your debt escalates and you could get into financial difficulty³. Government guidance on Help to Buy equity loans describes how arrears can build up when one or more of your monthly interest payments or management fees have not been paid². The pattern is the same across loan types: one missed payment becomes several, fees and interest stack on top, and the total owed grows faster than most people can catch up with.

Acting early matters for three practical reasons. First, lenders have more room to help before a debt has been sold on or passed to an enforcement agent. Second, free debt advice is easier to act on before a court claim or repossession process has started; when faced with repossession, the advice is to contact your solicitor or a free advice agency⁹. Third, some protections, including Breathing Space, work best as a pause while you put a plan together, not as a rescue after enforcement has begun.

If the loan is secured on your home, the stakes are higher still, and the guide to missing secured loan repayments and your home covers that separately. If someone guaranteed the loan, the guide to what a guarantor pays when the borrower misses payments sets out their position.

Talking to your lender about a temporary arrangement

Lenders can only help with problems they know about. The government's guidance on the Help to Buy mortgage guarantee scheme is typical of the message across the market: if you are finding it difficult to pay, contact your lender immediately¹⁰. Doing so is not an admission that invites enforcement; it is the step that opens up the arrangements lenders can consider.

For mortgage borrowing, the arrangements a lender may be able to make include reducing your payments for a set period, charging interest only for a while on a repayment mortgage, giving a payment holiday, or extending the mortgage term to reduce the payments. Which of these is offered depends on your payment history and on whether your difficulties are short or long term¹¹. The same principle of negotiated forbearance applies to unsecured personal loans, though the specific options vary by lender.

When you call, have your income and spending to hand, because any arrangement will be based on what you can actually afford. Be honest about whether the problem is temporary, such as a gap between jobs, or structural, such as a permanent fall in income, because the right arrangement differs. A payment holiday suits a short gap; a term extension suits a long-term squeeze.

If some of what you owe is to HMRC, such as tax credits or self assessment debt, you can get free, confidential and independent advice from a debt adviser about that too⁹. And if you believe the loan itself was unaffordable when it was granted, that is a separate issue: the guide to complaining about an unaffordable loan explains the complaint route, and complaining about a lender or finance company covers the process generally.

Free debt advice: StepChange, National Debtline, Citizens Advice and MoneyHelper

Debt advice is free in the UK, and the free routes are also the best-informed ones. The Financial Services Compensation Scheme points people struggling to repay money they owe towards free debt advice from resources including StepChange, Which? and Citizens Advice¹². The Financial Ombudsman Service, which handles complaints from people in financial difficulty, likewise directs people to Citizens Advice, which offers free advice on debt and other money problems, and to MoneyHelper, a government-backed service that can help you find a way forward if you are worried about money¹³.

The main free routes are:

• MoneyHelper: free, impartial money and pension guidance, backed by government⁶, with a helpline on 0800 138 7777⁶. It is sponsored by the Department for Work and Pensions¹⁴, offers tools and helplines in English and Welsh⁸, and states that it will never contact anyone out of the blue or charge for its services¹⁵.
• National Debtline: free advice on setting up a free debt management plan or negotiating reduced payments yourself, on 0808 808 4000⁷.
• Citizens Advice: free advice on debt and other money problems¹³, with a consumer service line open Monday to Friday, 9am to 5pm¹⁶.
• StepChange: a debt charity offering free advice and free debt solutions¹².

Getting advice is not the same as entering a formal solution. An adviser will first build a full picture of your debts, income and essential spending, then talk through the options, which range from negotiating with creditors yourself, through a debt management plan, to formal insolvency solutions covered in the debt section. Nothing is recorded on your credit file simply because you spoke to a charity; what affects your credit rating is failing to pay the debts themselves¹.

If gambling has played a part in the debt, Citizens Advice offers a free service including for help with gambling problems, and the Financial Ombudsman Service can look at complaints involving gambling-related harm¹³. If you are worried about a lender's behaviour as well as the debt itself, the guide to complaining about a lender sets out when the ombudsman can step in.

Breathing Space: 60 days' protection from interest, fees and enforcement

Breathing Space, formally the Debt Respite Scheme, gives people legal protections from their creditors for 60 days, with most interest and penalty charges frozen, and enforcement action paused⁴. It exists to give someone in problem debt a window in which to get advice and agree a longer-term solution without the debt growing or bailiffs arriving while they do it.

A standard Breathing Space lasts 60 days¹⁷. During that period, creditors named in the scheme cannot enforce the qualifying debts: no county court claims, no enforcement agents, no contact demanding payment. Most interest and penalty charges on those debts are also frozen⁴. The scheme does not write anything off; the debts still exist and still have to be dealt with at the end.

Many common debts qualify, including credit cards, store cards, personal loans, payday loans, overdrafts, arrears on utility bills, mortgage arrears, rent arrears, council tax debts, tax debts, welfare benefit overpayments (unless fraudulent) and penalty charge notices¹⁸.

Breathing Space is not a debt solution in itself. It is a pause, and the point of the pause is to use it: the debt adviser who starts the scheme will normally expect you to keep working with them towards a repayment plan or a formal solution. The debt section covers the full range of those solutions and who each one suits.

Who can get Breathing Space and how to apply

You cannot apply for Breathing Space yourself. The regulations state that an application may not be made unless the debtor has first obtained advice, whether in person, over the telephone or by electronic means, and the application is made to the debt advice provider who gave that advice⁵. In practice this means StepChange, National Debtline, Citizens Advice or another approved adviser starts the scheme for you.

The eligibility conditions are set out in the regulations. To enter a standard Breathing Space moratorium you must be an individual who owes a qualifying debt to a creditor, be domiciled or ordinarily resident in England or Wales, and not be in a debt relief order, an interim order or individual voluntary arrangement, an undischarged bankrupt, another Breathing Space moratorium, or a mental health crisis moratorium. If you have previously been in a Breathing Space, that one must have ended more than 12 months before the new application⁵. The underlying test is that the debtor is unable, or unlikely to be able, to repay some or all of their debt as it falls due, and that a Breathing Space moratorium is appropriate²². The House of Commons Library summarises the scheme as providing eligible individual debtors with problem debt a period of protection from their creditors²³.

Creditors are not passive during the 60 days. A creditor can accept payments from you, can ask your debt adviser to cancel the Breathing Space if they feel you are not eligible, or can apply to the court to cancel it¹⁸. So if your circumstances improve during the scheme, tell your adviser rather than quietly paying one creditor, because that can put the protection at risk.

One related rule matters for people on benefits: while a debtor is in a Breathing Space, no new application can be made for deductions from their benefits to repay a debt²⁴. Existing deductions stop for the qualifying debts in the scheme.

Where Breathing Space stops protecting you

Breathing Space has real limits, and it is worth knowing them before you rely on it.

The debts it covers are not universal. Excluded are secured debts (except arrears on them), debts incurred after the Breathing Space started, fraudulent debts, magistrates court fines, child maintenance or family court money, crisis or budgeting loans from the social fund, student loans, and personal injury damages¹⁸. So a mortgage itself is not in the scheme, only the arrears; a student loan balance is untouched; and new borrowing during the 60 days gets no protection at all.

Guarantor loans can be included in Breathing Space, but the creditor can still take action against the guarantor¹⁸. If someone guaranteed your loan, the scheme protects you, not them, and they can get their own advice. Joint debts can be included even if only one person goes into the scheme: creditors cannot enforce against either person during the 60 days, but they can still charge the other person interest or fees¹⁸.

The protection also blocks some, not all, legal steps. You cannot petition to bankrupt someone if you are told that they are temporarily protected from creditors through the Breathing Space scheme²⁵, so a creditor's bankruptcy petition is paused. But the scheme does not stop a landlord's right of forfeiture in every case, does not cover ongoing rent as it falls due, and does not prevent obligations that arise outside the qualifying debts. The 60 days end, and creditors can act again¹⁷.

Debt management plans: paying what you can afford, with no fees

A debt management plan (DMP) is an informal arrangement in which you pay one monthly amount, based on what you can afford, which is then distributed fairly between all your creditors²⁶. It is one of the most common next steps after advice, and it can be set up without paying anyone a fee.

The conditions are straightforward. DMPs can only be used to pay unsecured debts, for example money owed that has not been guaranteed against your property²⁶. You can only enter into a plan if you have some money left over every month once all your essential expenses have been paid²⁶. If there is nothing left over, a DMP cannot work and the adviser will look at other options in the debt section.

The monthly payment is based on how much you can afford to pay, and that payment is distributed fairly between all your creditors²⁶. Because the plan is informal, creditors are not legally bound to it and can still add interest in theory, though in practice most stop when a plan is running and being honoured. A DMP does not stop a debt being enforceable, and it is recorded on your credit file, which affects borrowing for some years afterwards.

The key point on cost: you can get free and independent advice on debt management plans, or any kind of debt problem, from organisations like Advice NI²⁶, and National Debtline advises on free DMPs and on negotiating reduced payments yourself, on 0808 808 4000⁷. Some companies charge fees to set up and run a DMP, and there is no need to pay them when the free charities run the same arrangement at no cost. If you are weighing a DMP against other routes, the comparison of a consolidation loan or free debt advice sets them side by side, and National Debtline has guidance on getting a mortgage with a debt management plan⁷.

Budgeting and checking what benefits you could claim

Before committing to any repayment plan, it is worth checking whether your income is actually as large as it could be. Many people in debt are also entitled to benefits they are not claiming, and a benefits check with Citizens Advice or MoneyHelper can change what a repayment plan looks like.

Keep your benefit records up to date, because if you do not report changes, you may not get all the money you are entitled to, or you may be overpaid and have to pay money back²⁷. An overpayment that then becomes a debt is a common way people end up in the advice system in the first place.

Some limited help exists for one-off costs. A Social Fund Budgeting Loan has repayment terms worked out when the loan is agreed, based on what you can afford, usually taken out of your benefit, and you must agree how you will repay before you get the payment²⁸. But Budgeting Loans are not provided to cover living costs²⁹, and certain factors, including urgency of need, health problems, loans for expenses less than £100, and payment if you already owe £1,500 or more to the Social Fund, cannot be taken into account²⁸. The guide to Budgeting Loans and Budgeting Advances covers the detail.

In Scotland, the Scottish Welfare Fund works differently: it is not for the provision of loans and credit but for grants that do not need to be paid back³⁰, and a Crisis Grant likewise does not need to be paid back³⁰. If you are weighing borrowing against a grant, that difference matters. The benefits section covers what can be claimed and how.

Avoid paid debt schemes and scam callers

People in debt are a target for two kinds of operator: companies that charge for what free charities do, and outright scammers. Both can be spotted.

The warning signs of a scam are consistent across official guidance: something that sounds too good to be true normally is; being contacted unexpectedly by a company; being asked for personal or bank information; not being given long to make a decision or feeling pressured; being asked to pay up-front with only a mobile number and PO box as contact details; being called repeatedly and kept on the phone a long time; and being asked to keep quiet³¹. Any one of these should set alarm bells ringing.

Two rules protect directly against the commonest tricks:

• Never pay a fee upfront to get a loan¹⁵. This is loan fee fraud, and the guide to whether a lender asking for an upfront fee is a scam covers it.
• Do not access your pension or transfer any money because of a cold call, visit, email or text; it is likely a scam¹⁵.

Scammers also impersonate official bodies. The Student Loans Company warns that scammers send convincing text messages, emails or phone calls claiming a payment is at risk, has been blocked, that bank details need updating, or that an account will be closed unless the recipient acts immediately³². The same technique is used with banks, HMRC and debt charities. MoneyHelper states plainly that it will never contact anyone out of the blue or charge for its services, and that the Money and Pensions Service has never, and will never, turn up at your home or contact you out of the blue via phone, WhatsApp, email or text¹⁵. Anyone claiming to be from a debt charity who cold-calls you is not from that charity.

If you have been scammed, the official steps are: contact your bank or payment services provider immediately; contact the police on 101; report the scam to Report Fraud; and keep records of all contact and correspondence between you and the scammer³³. The scams and fraud section covers the wider ground, and the Financial Ombudsman Service can consider complaints involving unauthorised payments and identity theft³³.

Scotland and Northern Ireland: different rules apply

Breathing Space as described above applies in England and Wales. In Northern Ireland, the debt respite scheme has been extended by its own statutory instrument, and a standard Breathing Space there likewise lasts 60 days¹⁷. Scotland does not have the same scheme; debt solutions north of the border run through different routes, and the debt section and the Scotland loans page cover what applies there.

Other rules diverge too. The process to become bankrupt is different if you live in Scotland or Northern Ireland³⁴. Making a court claim for money follows one process in England and Wales, and there is a different process to make a court claim in Scotland and in Northern Ireland³⁵. Government-backed schemes also vary by nation: there are no government-backed loans to help build homes in Scotland or Northern Ireland³⁶, and in Scotland the Additional Dwelling Supplement rules contain no provisions for exceptional circumstances where repayment conditions are not met³⁷.

Free advice is available in every nation. In Northern Ireland, Advice NI is among the organisations offering free and independent advice on dealing with debt problems³⁸, and nidirect publishes guidance on debt management plans and on consolidating debts²⁶. In Scotland, Citizens Advice Scotland and the Scottish Welfare Fund, with its grants that do not need to be paid back³⁰, are part of the landscape. The Northern Ireland loans page and the nations guide set out the differences that matter for borrowing and debt.