Small loan is crippling me.

Reece_ST

So I have somewhat of a problem.

I took out a loan a few years ago for 5K. For a course I wanted to do.
Turned out the course was not what I signed up for at all, but a ridiculous contract meant I couldn't get out of it by any legal means - even death. They expected payment on death, made me laugh, but I digress.

After looking at several dozen topics on the matter, I resigned myself to just paying off the debt. £135p/m, could be worse.

Well, it got worse. I lost my job several months ago. It wouldn't have been so bad, but this loan tripled my monthly outgoings compared to what they would be without it, so I'm sort of wondering...

What would happen if I just stopped paying that loan off?

McKneff

Well they would chase you for payment.
Then they would eventually send debt collectors
Then they would take you to court
Then they would take good from you to sell to cover the debt.
Than your credit would be trashed and you wouldn't be able to get as much as a mobile phone on credit.

Reece_ST

Well, I'm already skint pretty much. Next months payments will take me below 0.
I've already sold anything I have that's worth a damn, so if they do try to take anything, they might be able to make 30 quid, maybe.
So... really? Apart from ruining my credit, what's the worst case scenario?

tiger_eyes

It would be better to keep up payments if possible, but if you genuinely have nothing left after paying for essentials like food and rent, you can't pay the loan - end of story. You have no choice but to default. They're more likely to play nicely if you call them to inform them of your circumstances (unemployed, no income) and offer to pay a token £1 a month until your circumstances improve. Debt collectors have no right to harass you and no right to enter your home. You cannot be sent to jail for not paying a loan and a court will not force you to pay more than you can realistically afford.

poppasmurf_bewdley

See if a Debt Relief Order is of any use to you:

http://www.stepchange.org/Howwecanhelpyou/DRODebtrelieforder.aspx

forgotmyname

Possibly years worth of harassment before they think of take you to court.

Debt gets passes lower down the chain until it ends up in the lap of companies that play close to legal.

Dont forget it trashes for file for 6 years. What if you you get offered a job but need a fairly new car which they will give you an allowance for?

Plenty of threads where people have wished they didnt have a default on their credit file.

Reece_ST

OK. So, which if the Debt Relief thing doesn't pan out, which is better.

Getting into minus numbers with my bank, and owing them money because I don't have enough money, or just defaulting?

Which is the lesser of two evils?

tiger_eyes

That depends. I gather you have enough funds to live off for the immediate future, even if you have to dip into your overdraft. If you're not going to starve, it would be better to avoid defaulting - certainly I think it would be better to go into your overdraft to continue covering the loan, especially if you're likely to find a job again soon. Overdrafts are pretty much designed to cover this kind of gap between jobs.

It's difficult to guess how much a default would affect you. A default will remain on your credit record for six years, which will affect applications for credit a lot right now and somewhat less as time goes on. The default should drop off entirely after six years. Are you likely to want a mortgage any time soon?

PS: If you rent in the private sector, credit checks by letting agents etc will only check your public record, which is only CCJs and bankruptcies. Defaults alone will not show up in your credit check so will not be a problem for renting.

PPS: A Debt Relief Order would destroy your credit record worse than defaulting. But better than starving to death and/or being homeless.

daytona0

It would be interesting to explore two points:

1. You took the loan out "a few years ago". What type of loan was it? Also, how much have you already paid back? You only need to pay for about 3.5 years at that rate to clear the debt + interest, so "a few years" is probably close to 3.5.... so on the face of it you should be a long way to clearing the debt anyway, unless you had a break (either through refusing to pay or through the terms of the loan).

2. You say you lost your job "several months ago" which brings up the query as to whether you've been paying £135 a month since then or defaulting. Assuming you haven't been defaulting, you can probably just ring them up and point out that you've been making regular payments but now you need some help. I'm sure they'd rather you pay what you can afford than to default!

beeswax95

Sorry I have not read all the responses but in my opinion the best thing you can do for yourself is to contact your creditor. I've been in your situation before and I wish I had done it sooner than I did. Tell them about your financial difficulties. They will work with you to work out something that suits your situation.

It was only with the understanding and help of my 5 creditors that I was able to dig myself out of the hole I was in and got back on my feet.

Dont be afraid or embarrassed to contact them. They can be more understanding than you think. I hope that everything works out well for you. Best of luck

enthusiasticsaver

Your best option is to contact them and explain your circumstances and say you are unable to pay them. You could send them your income and expenditure details proving that and make an offer of a reduced amount. If you just default you will probably end up with a lot of extra costs and maybe even court costs which will stay on your record. That is best avoided.


It is irrelevant what the loan was taken out for. You signed an agreement entering a contract to repay and presumably have done so until this point. Hopefully they will try and help you through this difficult period until you find another job.