Sometimes life throws us a financial hurdle and we don’t quite have the funds to cover it. It can be anything from an urgent car repair so that you can get to work, to a new pair of school shoes for your child because the soles have worn through. We know life’s lemons can be bitter and sometimes we need a little helping hand with our cash flow issues.
Maybe we use a credit card or take out a short term loan to bridge the gap, and either way, when we use this kind of credit, we always have full intentions of repaying it. But what happens if something else crops up, and suddenly you’re thinking: I can’t repay my loan?
Well first thing’s first: don’t panic. It’s easier said than done when it comes to money, but it can make it much harder to rationalise if you aren’t in the frame of mind to do so. Think about talking to a friend or family member, or even a free debt advice service. Usually speaking to someone else about it can help you focus in on the problem and then how to resolve it.
Whenever discussing money, whether you’ve got a sudden expense or you’ve just been paid, it’s always good to have a rough budget in mind. Living on a budget can be hard, but knowing what priority bills you have and when they need paying will never hinder your financial situation.
Draw up a list of all your non-discretionary expenditure (the things you can’t live without such as rent, utilities, food) and then list your discretionary expenditure (things like leisure activities and takeaways). If your expenditure is more than your income, then you may need to make a few lifestyle changes. However, if your expenditure is less than your income then the amount left over is your disposable income. Your disposable income is the money you can use for emergency bills, loan repayments or even savings.
Once you’ve budgeted your finances, you should know how much you can afford to pay your creditor. If you can’t make the repayment in full, the first thing you need to do is get in touch. Email or call the lender and explain your circumstances. The more you tell them, the better they can help you by providing an affordable plan. If you’ve already done an income and expenditure form, then you can state how much you can afford to repay each month and your creditor should be able to set this up for you.
Some lenders may require some sort of documentation to support your income and expenditure. They aren’t looking for ways to deny you an affordable repayment plan, but there are guidelines which state the customer needs to demonstrate that they are unable to make bigger repayments.
Usually a bank statement or a document which shows a sudden change in circumstances such as a bill/invoice or reduced payslip will suffice. Your creditor will then arrange your repayment plan for you, although they should check that you agree with the repayment dates and amounts if you haven’t asked for a specific plan.
Once the repayment plan is set up, make sure you stick to it. Remember, your repayment plan will show on your credit file so it’s important that you settle your loan as soon as possible. Sometimes repayment plans can be flexible so if you need to make any small amendments, your creditor should be able to action these quite easily.
Any big changes like missing a month’s payment or reducing the amounts may require additional information or potentially a token payment (usually £10 or less).
Although it’s fairly simple to arrange an alternative repayment plan with your creditor, it can become overwhelming if you have multiple debts to different lenders. If you’re uncomfortable trying to sort it all out by yourself, and you don’t necessarily want to get friends and family involved, you can always speak to a free debt advice service. There are several free services available and they will walk you through how to manage your debt and the different options available for repayment. It’s still wise to get in touch with your creditor and let them know you are speaking to a third party debt service, because the more they know about your circumstances the better they can help you and update your account appropriately.
One of the main services free debt advice companies can offer is a debt management plan. Not everyone qualifies for a DMP and they aren’t legally binding so your creditor might reject it (although most of them will accept the proposal), but it basically works like one repayment plan for all of your creditors. You will pay the debt management company one payment each month or week and they will divide the amount proportionately to your creditors. This can be a lot easier for some people as they only have to manage one payment, however debt management plans can show on your credit file and some debt management companies might terminate your plan if you miss your repayments.
While you may never intend to miss your repayments or default on a loan, sometimes things happen outside of our control and it can make it difficult to maintain financial commitments. That’s why tackling the problem early and asking for help can reduce the stress and anxiety that comes with spiralling debt.
Arranging a repayment plan for one or two loans is much easier to manage than having multiple loans at one time in an attempt to repay old loans. Creditors want to help you repay your loan in a way that you can afford, and the first step is getting in touch to let them know you’re struggling.
Hopefully, once you’ve repaid your loan or settled your credit card statement, you won’t need any further financial help – at least not for a long while. But if something does come up, and you haven’t quite reached payday, it’s important to research any loan before you apply. Clear and Fair compares loans so you don’t have to; you can select your repayment dates and the amount you need to borrow (remember not to borrow any more than you need as the more you borrow, the more interest you will have to repay) and our repayment calculator will show you which lenders can offer you the cheapest loan.
We know it’s not ideal to have to borrow money, but if push comes to shove, you shouldn’t have to pay more than necessary.
All you need to know about short term loans
The best saving tips, budget ideas and ways to improve your financial health