To Default Or Not To Default?

fr0zen

I have never defaulted on a payment in my life, but I face an important decision this weekend, and need advice.

As a brief summary, my financial position is that I have a bank loan of 20k, which is my only current debt. I have settled all other outstanding debts either in full or as partial settlements.

I have been offered a partial settlement on the outstanding loan of 13.5k, which if settled on Monday, would prevent the account from defaulting. If I don't settle, then 17.5k of the original loan will be passed to the banks repayment service and I will have a default on my credit file for six years!

So my question is simple, is it worth me paying 13.5k to not default? The 13.5k would be gifted from family, with no expectation of repayment.

My main reason for not wanting to default is that within the next six years, hopefully within two year, I will be back working and would like to get a mortgage. With a default, that would be impossible, but with several partially settled debts, this may still be difficult.

So my thought process is to let my account default, continue to offer token monthly payments while i'm on low income and then offer a lower partial settlement with the repayment service team when I have a lump sum saved or take out a DRO against the loan and write it off and then start from scratch again.

Any advice is welcome

fr0zen

No advice?

sourcrates

Hi,

Its a question only you can answer, you present a lot of variables in your post, if you have the means to pay it, then do so.

A default would stay on your file for 6 years yes, so it would be difficult, but not impossible, to get a mortgage, a DRO would have a similar effect on you, but the eligibility criteria is quite strict.

glentoran99

Have you checked your credit file recently? If you have settled with partial settlements I would imagine you already have defaults,

Fireflyaway

If this was me, I'd default. I certainly wouldnt accept money from a family member to pay debt. That's got the potential to change your relationship forever.
Defaults are not the end of the world. Is it because you lost your job or something?
You still might be able to get a mortgage with one default sooner than 6 years. If not then rent. Its not the end of the world. Save a bigger deposit whilst you are waiting. This country is snobby about home ownership! You are not a loser if you delay buying until such time it works for you.

National_Debtline

Hi fr0zen


As sourcrates suggests above, there are quite a few variable and unknowns here so it's hard to give you a definitive steer on your next steps.


In your shoes, I would start by determining my end goals and working backwards from there. If you are aspiring to get a mortgage in the foreseeable future, I think we can safely rule out the DRO option (and in any case you might not have turned out to be eligible, having settled various other debts but not this one).


The other question is how that help from your family could best be used (assuming that the £13.5K is not on offer solely for the purposes of settling this loan, but could be gifted at a later stage to, say, help fund a house deposit). Is it an absolute given that this loan will default if you do anything short of settling up - is there no smaller payment that you can make in the interim that will bring the instalments back up to date?


Dennis
@natdebtline

fr0zen

Appreciate the replies, especially the detailed response by National Debtline, where I think you hit the nail on the head and was my thought process too, working backwards.

In the end I decided to settle up . 13.5k was more than I wanted to pay, but what it does is give me options for the future. I probably would not have been able to DRO the loan anyway which was my intention, even if I waited two years to do it so the only options I had were to a) settle b) default and settle at a lower amount or c) go on a long term low affordability plan

The 13.5k from the family could have been gifted to me - either as a part deposit for a house or money for a car, but I could see no logical way of writing off the loan so it would have had to have been settled at some stage...

I think the benefits of being debt free now (even if I had a non obligated family debt) far outweighs everything else for me personally. No more letters, no more demands, no more negotiations. I am 100% debt free to the banks and will have a decent credit file once the dust settles (albeit with a few partially settled debts and some missed payments which will drop off after a year I am told) but no defaults.

My next step is to close all remaining account I have, keeping just one bank account and one credit card with modest limits, getting back into work and signing off universal credit.

I saved almost 10k total through short settlements, but I won't know the full impact of that until I apply for a mortgage.