What happens If I default on a loan?
You should never take out a loan unless you’re confident you can pay it back, but financial circumstances can change. Our guide explains what happens if you can’t repay what you borrow..
Key takeaways
Defaulting can seriously damage your credit score. A loan default stays on your credit report for six years and may reduce your chances of being approved for credit in the future
You’re still responsible for repaying the debt. Defaulting doesn’t wipe out what you owe – your lender can still pursue you, and if there’s a guarantor or joint borrower, they could be held liable too
Legal action is a possibility. If the debt remains unpaid, it could lead to a County Court Judgment (CCJ), which makes it even harder to borrow and further harms your credit file
Early action can help prevent the worst. If you’re struggling, speak to your lender straight away. They may be able to offer support like a payment plan – and you may avoid default altogether
What does it mean to default on a loan?
Defaulting on a loan means you’ve failed to make the agreed repayments to your lender – usually after missing several consecutive payments.
When this happens, the lender may take action to recover what you owe, which could include extra charges, passing the debt to a collections agency, or even taking legal steps.
A default is also recorded on your credit report and can seriously damage your credit score, making it harder to borrow money in the future.
Most lenders will issue a formal ‘default notice’ first, giving you a chance to catch up on missed payments.
If you’re struggling to keep up, it’s important to speak to your lender as soon as possible – they may be able to help. Taking early action could prevent the situation from escalating and protect your financial future.
What are the consequences of defaulting on a loan?
Defaulting on a loan can have serious short- and long-term effects on your finances and credit record. The key consequences include:
Late payment fees, default charges, and ongoing interest can quickly increase the total amount you owe.
Your lender may pass the debt to a collection agency, who may contact you frequently and add additional pressure to repay what you owe.
If the debt remains unpaid, the lender could take legal action, which may lead to a County Court Judgment (CCJ) against you in England and Wales.
A default is recorded on your credit report and can significantly lower your credit score, making it harder to get approved for credit in the future.
If you’re able to borrow again, lenders may offer higher interest rates or stricter terms, as you’ll be seen as a higher-risk borrower.
A poor credit record can make it harder to rent a property, take out a mobile phone contract, or get utilities in your name.
If someone co-signed the loan or acted as a guarantor, they could be held responsible for the debt and face the same consequences.
Added fees and interest
Debt collection action
Legal action and court judgments
Damage to your credit score
Higher borrowing costs
Difficulty getting essentials on credit
Impact on guarantors or joint applicants
Taking action early by speaking to your lender or seeking debt advice can help you avoid the worst outcomes.
Is there a difference if I default on a secured loan versus an unsecured loan?
Yes, there’s a key difference between defaulting on a secured loan and an unsecured loan.
With a secured loan: The debt is tied to an asset – like your home or car. If you default, the lender can repossess the asset to recover their money, which puts your property at risk.
With an unsecured loan: There’s no collateral, so while the lender can’t take your belongings, they can still take legal action, such as pursuing a County Court Judgment (CCJ).
Who pays off the loan if I default?
If you default on a loan, the responsibility for repaying the debt doesn’t disappear. Here’s who might end up covering the cost:
Even after defaulting, you’re still liable for the debt. Your lender will continue to pursue you for payment until the balance is settled, often with added interest and fees.
If your loan has a guarantor, they’re legally obliged to repay the debt if you can’t. The lender will turn to them to recover what’s owed – which could damage their credit record too.
For loans taken out with someone else (like a partner or business associate), the other borrower becomes fully responsible for repaying the loan in full if you default.
If the debt remains unpaid, your lender might sell it to a debt collection agency, who will then try to recover the money directly from you.
You’re still legally responsible
A guarantor
Joint loan holders
Debt collectors or enforcement agencie
How long will a loan default stay on my record?
A loan default can stay on your credit report for six years, but can leave a lasting mark on your credit history:
From the date the default is recorded, it’ll remain on your credit file for six years even if you repay the debt in full during that time
Lenders use your credit report to decide whether to approve applications. A default may signal higher risk, making it harder to get loans, credit cards, or mortgages – or you might face higher interest rates.
As the default gets older and you demonstrate better financial behaviour (such as making payments on time), its impact on your credit score usually reduces
If there were special circumstances – such as illness or redundancy – you can add a short note to your credit report explaining what happened. Lenders will be able to read this when they review your application.
While a default won’t stay on your record forever, it can make borrowing more difficult in the short term, so it’s important to manage repayments and seek support early if you’re struggling.
Can a default become a CCJ?
Yes, if you default on a loan and don’t repay what you owe, it can lead to a County Court Judgment (CCJ) being issued against you. Here’s how it works:
A default is the first warning sign. Missing several payments usually leads to a default being registered on your credit file. This tells lenders you’ve broken the terms of your credit agreement.
If the debt remains unpaid, legal action can follow. Your lender might take you to court to recover the money. If the court rules in their favour, you’ll receive a CCJ – a formal order to repay the debt.
You can avoid a CCJ by acting quickly. Once you receive a notice of claim, you usually have 14 days to respond. If you pay the full amount within 30 days of the judgment, the CCJ won’t appear on your credit file.
A CCJ will impact your credit score for six years. Like a default, a CCJ stays on your report for six years, and it can make borrowing much harder in the future.
What is the impact on my credit score?
Defaulting on a loan can have a serious impact on your credit score and the effects can stick around for years.
A default signals to lenders that you’ve failed to meet your repayments, which makes you appear higher risk.
Your score could fall by several hundred points, depending on your starting score and the credit agency used. See our guide on how your credit score is calculated.
Even if you pay off the debt after defaulting, the default itself will remain visible on your credit report for six years, which can affect your ability to get credit during that time.
Lenders may be less willing to offer you loans, credit cards or mortgages. If they do, you're likely to face higher interest rates, lower credit limits or stricter terms.
A poor credit score doesn’t just impact borrowing – you could also struggle to get mobile phone contracts, car finance, or rental agreements, especially if credit checks are involved.
What can you do to avoid defaulting on your loan?
Depending on your financial situation, there are steps you can take to stay on track and avoid a default. These include:
Automating your repayments means you're less likely to miss one by accident. Choose a date that lines up with payday, so the money's there when needed.
Understanding what comes in and goes out each month helps you manage your money and ensure there’s enough to cover your loan repayments.
If you’re struggling to keep up with repayments, don’t bury your head in the sand. Lenders can often offer support – such as a payment holiday or revised plan – if you contact them before you miss a payment.
Before taking out a loan, make sure the monthly repayments are realistic. Use a loan calculator to check affordability and don’t stretch your budget too thin.
If you're juggling multiple repayments, a debt consolidation loan could simplify things by combining them into one monthly payment – potentially at a lower rate.
Charities like Citizens Advice, StepChange or National Debtline can offer confidential, expert help to get your finances back on track before things escalate.
Setting up a Direct Debit
Create a monthly budget
Talk to your lender early
Avoid borrowing more than you can afford
Consider consolidating debts
Seek free debt advice
For more help, our guide on what to do if you’re struggling to meet debt repayments has some useful information.
Personal Finance Expert
Our expert says
Defaulting on a loan isn’t a get-out-of-jail-free card for your financial situation because the debt doesn’t just go away. If you are in a tough spot, look at the various options, with the first step being to admit there is a problem. Don’t fear contacting the lender as they have a duty to treat you fairly and you may be able to come up with a more manageable repayment plan to get back on track.
Compare consolidation loans with MoneySuperMarket
If you’re struggling with multiple debts, a consolidation loan with more manageable monthly payments could be beneficial.
You should consider the overall impact on your finances, and you may end up paying more in total interest, but it could mean you won’t miss monthly repayments and remove some of the stress.
MoneySuperMarket can help you compare loans from leading lenders by showing the key features, such as how much you might be able to borrow, and the cost and length of the loan.
MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead, we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.
