What to do if you're struggling with loan repayments

Help if you're in financial difficulty

Matt Finn | Edited by Luke Warren

Updated 19 February 2024

Coping with difficulties around debt and loan repayments can be extremely challenging, particularly during a cost of living crisis. The good news, however, is that no debt problem is unsolvable, and with the right help, anyone can get back on to a strong financial footing. In this guide we'll talk you through exactly what you need to do.

Who's this guide for? This guide is for anybody who's struggling to repay a loan.

If your financial issues extend further than this, see our Debt problems guide for what to do and where to get help.

And for more support around loans in general, see these full MSE guides and pages:

Cut existing loan costs | Payday loans | Loans

I can't make my loan repayments – what should I do?

Your financial situation can shift suddenly for many reasons, whether that's a job loss, an illness or a divorce. This can leave you struggling to pay back what you owe.

As soon as you realise you could be getting into difficulty and may struggle to make a repayment, take the following steps:

Contact your lender

If you know you're going to miss a payment, get in touch with your lender. It's always best to be upfront about your situation – in turn, the loan provider should listen to you, consider your circumstances and look at the ways in which it may be able to help.

That could be by pausing your repayments or freezing interest for a period, or something else – we look at some of the options available to lenders later in this guide.

The sooner you contact your loan provider, the better.

Seek free debt advice

Talking to someone about your debt issues can be reassuring and quickly set you on the path to repairing your finances. Charities such as StepChange, National Debtline and Citizens Advice can provide free, one-to-one debt-counselling help to anyone experiencing issues with debt.

They're there to help, not judge, and can support you with a plan to face your finances head-on, and guide you when it comes to communicating with anyone that you owe money to.

For more info on these charities and more, as well as a simple step-by-step guide to improving your finances, see Debt help plan.

Check whether you can cut your loan costs

This won't be possible for everyone, but switching your loan to a new, cheaper one can help to cut your costs and bring your monthly repayments to a more affordable level. This is especially true if you're repaying a high-cost loan.

If your current interest rate is more than 6%, do check if you can save by getting a new loan to reduce your monthly repayments. Our Cut existing loan costs guide has full info on the process, and includes a loan-switching calculator that can show you whether this will work for you.

What happens if I can't repay my loan?

If you miss a loan repayment, your lender will typically send you a letter warning you that you need to make a payment. This will outline any late payment charges and/or additional interest due. Missed payment fees can be anywhere between £10 and £25.

If you do miss a payment, the lender is likely to mark this on your credit report. However, if you can make up the payment quickly, you may be able to avoid a late payment being reported – especially if there are mitigating circumstances. As above, in this situation contact your lender ASAP and explain your situation. However, even if the lender agrees not to report a late payment, you may still have to pay a late payment charge.

If a missed payment is ever noted on your credit report, it could harm your score and affect your chances of getting finance in the future. This is why it's key to plan and budget any borrowing that you do.

Should you miss multiple debt repayments – typically three to six months' worth – you'll receive a 'default notice'. This is a formal warning that you're behind on your payments (in 'arrears'), and that your loan may 'default'. While the notice won't affect your credit file, if you do go on to default on the loan, this will have a serious, negative impact on your ability to access credit in future. You're usually given at least two weeks to make up the missed payments.

If you don't do anything, and your loan does default, the lender can take action to recover the debt. That could include:

Using a debt collection agency

Taking you to court
Trying to repossess your property, such as your home or vehicle, if it's a secured loan

So it's critical that you take action and address your debt issues before things get to this stage.

As above, contact your lender as soon as you think you may be getting into difficulty, and seek free debt advice.

Struggling to repay a payday loan?

If you've taken out a payday loan and are then struggling to repay it, this points to a wider problem with your finances. It's crucial that you seek free debt help.

In this situation – having a payday loan that you can't repay – the lender may offer to extend it or 'roll over' your balance into another month.

While this may appeal in the short term, BEWARE that extending or rolling over your payday loan can easily cause your debt issues to spiral. Ultimately, doing this will cost you more, as you'll face additional interest and/or charges. In fact, regulator the Financial Conduct Authority has rules in place that prevent lenders from rolling over a balance more than twice.

If you can't repay your payday loan, DON'T take out another, or any other debt. You're in real danger of your problems getting worse, so talk to a free debt help charity to work out the best course of action.

Generally, payday loans are a financial nightmare and should be avoided completely – learn more in our Payday loans guide.

Bring your debt under control: a step-by-step guide

Getting your debt under control takes commitment and discipline, but is totally achievable – and our step-by-step process below can help.

Step 1: Create a budget

Interrogate your finances to give yourself the clearest picture of your current situation. When the debts begin to pile it can be tempting to bury your head in the sand, but facing up to what's happening, and working out your income, outgoings and exactly how much you owe, is an essential first step. Only then can you start to manage and control your money effectively. Here's what to do:

Assess your finances. Gather your financial documents, including bank statements, credit card bills and loan agreements. If you've gone paperless, check online or via your apps.
List all debts. Note down any cash that you owe, such as credit card, loan or car finance debt, on a spreadsheet. For each one, include the lender's name, the balance, interest rate, and the minimum monthly payment. If you have any debts that are currently interest-free, for example on a 0% spending card, also jot down when the 0% period(s) end.
Track your income and expenses. Create a separate spreadsheet detailing all your sources of income and monthly expenses, including essentials such as rent or mortgage and food, and non-essentials such as entertainment and eating out.
Identify savings. Ensure you can cover all your essential expenses, but elsewhere, look for areas where you can cut back on non-essential spending – for example, subscriptions you no longer use. The aim is to free up money for debt repayments. For more help on trimming your costs, see our Money makeover guide.
Check you're getting what you're due. See if you qualify for any benefits and whether you're eligible to reclaim any previous fees and charges – see more in Debt help.

For a full guide on how to manage your money to great effect, see our free Budget Planner.

Step 2: See if you can cut your debt costs

Once you've listed all your debts, see if you can reduce their cost. We go into more detail on this in our main Debt help guide, but in brief:

If you have a loan, read our Cut existing loan costs guide.
For overdrafts, check Cut overdraft charges.
For credit and store cards, read about balance transfer credit cards.
If you get rejected for new credit, you can still cut rates with the credit card shuffle.
If you have a mortgage, read our Remortgage Guide.

Once your debts are as cheap as they can be, move on to step 3...

A drawing of a clipboard with 'Debt' as the title. The clipboard features a checklist, with the first item titled 'Overdraft' and featuring the words 40% APR in brackets below – this box is ticked. The second item on the checklist is titled 'Credit Card' and has the words 23% APR in brackets below– the box here is not ticked. The third and final item is titled 'Credit Card 2' with the words 19% APR below in brackets – this box is also not ticked.

Step 3: Prioritise your repayments

The next step is to prioritise your debts, based on their interest rates, NOT the size of the debt. This ensures you focus first on tackling the debt that's growing the quickest.

Look at your list of all your debts. Refer back to the spreadsheet you created in step 1.
Prioritise your debts by interest rate. Order your debts from the highest to the lowest interest rate, known as the APR ('annual percentage rate'). Any debt that is currently interest-free should be the lowest priority, but do be aware of when any 0% periods end, and aim to clear or transfer any remaining balances before then.

Step 4: Repay the most expensive debt first

With your debts ordered by APR, focus on repaying the debt with the highest interest rate first. This helps to minimise the total interest paid over time, reducing your debt faster.

Make at least the minimum payments. Ensure you continue to make at least the minimum payments on all your debts to avoid penalties and to maintain your credit score.
Use extra funds to pay off the highest APR debt. Any additional money you've allocated for debt repayments should go towards the debt with the highest APR first. This reduces that balance faster, decreasing the amount of interest that builds up.
Move on to the next highest APR. After fully paying off the debt with the highest interest rate, move to the next one on your list. Reallocate the amount you were paying on the now-cleared debt (both the minimum payment and any extra payments) to the debt with the next highest APR, and continue the process.

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Is a debt consolidation loan the answer?

If you've got multiple debts, a debt consolidation loan brings them all into one place.

Typically this involves taking out a new personal loan to cover the total amount of all your debts combined, then using that borrowed cash to pay off the individual debts. So instead of having multiple payments to different lenders, potentially on different dates, you have just one payment to make, repaying the personal loan.

The idea is one fixed payment is easier to keep track of, rather than repaying various amounts to various lenders at varying interest rates.

However, as a debt consolidation loan requires more borrowing, it has the potential to lead to even more debt. So be warned that a debt consolidation loan won't necessarily be the answer, and could make your finances worse. Instead, you could try shifting your debts to 0% (see below).

Plus, it's important to consider the reasons for having to borrow in the first place. It will help to assess your financial situation and create a budget. And for more help on tackling spending and details of debt advice charities, see Debt problems.

Shift debts to 0%

See if you can cut the cost of your existing debt. Moving your debt on to interest-free cards is the quickest and best way to slash costs, potentially saving you £1,000s in interest.

There are two main ways to shift debts to 0% interest, depending on the type of debt you have. Importantly, don't use the cards below for new spending, as it isn't usually at the cheap rate:

If you've credit or store card debt, see if you can move it to a 0% balance transfer credit card. This means you won't be charged interest on the debt for a set period, which can be over two years in some cases. You'll usually pay a fee to do this, which is a percentage of the amount of debt shifted, but there are also fee-free options out there. These tend to have shorter 0% periods though. Check out top balance transfer cards for full info.
If you've an overdraft or high-cost loan, you may be able to use a 0% money transfer credit card, which will pay cash into your bank account for a small fee. You can then use this money to clear your debt, owing the card instead, but it'll be interest-free for a set period, similar to a balance transfer. Learn more in our 0% money transfers guide.

The WRONG people to go to

Avoid any debt help or loan consolidation companies that advertise online, on TV or in some newspapers. Their job is to make money out of you – plain and simple.

While in the short term their plans will make your payments lower, in the long run it'll cost you dear. Avoid them at all costs.

Can I freeze payments, or reduce or cancel my loan repayments?

Steps such as freezing or reducing your loan repayments may be possible, depending on your situation and lender.

To consider any of these options, you'll first need to contact your loan provider and let it know that you're struggling to make your repayments. Then, once the lender knows about your financial situation, you'll be able to discuss if any of these may help.

Do note that while these options may work in the short term, for a longer-lasting turnaround for your finances, it's key you work to reduce your debt costs and create a budget to manage your money effectively.

Freezing loan repayments or interest

Some loan providers will allow you to take a 'payment holiday', where loan repayments are stopped temporarily. This can give you respite from having to repay your loan, but be aware that interest will still usually build up in the meantime. This means your total debt could increase and your repayments may be higher when they restart.

An alternative option is to get the interest on your loan repayments frozen for a certain period. You'll still have to pay off what you owe during this time, minus the interest. Under guidelines from the regulator the Financial Conduct Authority, lenders must at least consider any requests to freeze the interest on loan repayments when you're in financial difficulty.

Bear in mind that a payment holiday or freezing your interest may be marked on your credit report, which could make it harder for you to access credit in future.

How to freeze loan repayments or interest

Speak to your lender. If you can prove you're struggling, it's more likely to offer you a payment holiday or freeze your interest – you may need to provide it with a detailed breakdown of your income and outgoings. Also, let it know if you have any mental or physical health problems, as it will have to consider these too.

If you feel uncomfortable about talking to your lender yourself, charities such as Citizens Advice and StepChange can help.

Reducing loan repayments

Your lender may be willing to reduce your monthly payments by extending the loan term, if you ask. Bear in mind again though, that while this will lower the amount you pay each month, it could see the amount of interest you pay increase.

It's worth considering whether you can cut your existing loan costs yourself – see our full guide for more info.

Cancelling loan repayments

This image features a computer keyboard with the Cancel key highlighted in orange

Don't ever just cancel your Direct Debit repaying your loan, as this can have serious negative consequences for your finances. It's far better to talk to your lender about your issues, seek further help, and come up with a plan to move forward.

If you're really struggling financially, there are formal debt solutions available that can give temporary relief from your debts, and ultimately result in some of them being written off.

However, DON'T consider these as options without first getting advice from one of the debt management charities mentioned below.

They should be able to guide you as to which are suitable (if any), and be able to direct you towards further help to apply.

A debt management plan (DMP). This brings your debts together into one monthly payment, based on what you can afford, which is then divided between those that you owe money to. Often these are arranged by DMP providers, but be aware that some of these will charge you. However, it's possible to avoid these costs, with charities such as StepChange helping you to arrange a debt management plan for free.
A debt relief order. For those with low incomes and few assets, a debt relief order (aka 'minimal asset process' in Scotland) freezes your debt repayments and interest for 12 months. If your financial situation hasn't improved after this period, the debts included in the order are written off.
An individual voluntary arrangement. This is a formal agreement with creditors to pay off all or some of your debt over a period of time (usually five or six years). Any remaining debt is written off at the end of this time.

Read more about formal debt solutions in our full Debt help guide.

Where can I go for free debt advice?

Many charities offer free help for those struggling with debt. These include:

StepChange – Available across the UK, StepChange can provide online support via its debt advice tool, which allows you to create a budget and get a personal action plan with practical next steps.
National Debtline – This registered charity gives free advice and offers resources to help, over the phone, online and via webchat.
Citizens Advice – This debt and consumer advice service is available in England and Wales (see Citizens Advice Scotland or Advice NI if you're in Northern Ireland). Many bureaux have specialist case workers to deal with any type of debt situation, including negotiating with your creditors.

What you shouldn't do is pay one of the many debt-counselling companies out there. Their main aim is to make money out of you, something that could further harm your financial situation. Learn more in our full Debt help guide.

Where can I make a complaint about my lender?

If you believe your lender is treating you unfairly, your first step is to send it a written complaint.

Then, if you don't receive a satisfactory response, escalate your complaint to the free-to-use Financial Ombudsman Service, which deals with disputes of this kind.

Read more in our guide to the Financial Ombudsman.