Defaulting on a Secured Loan

It is of paramount importance that borrowers be aware that should they default on payments for secured finance that this may put your home, or any asset used as collateral, at risk of repossession by the lender. Should you find yourself struggling to meet payment obligations it is imperative that you contact the lender as soon as possible. Your lender will be more inclined to help you find a workable solution than to start repossession proceedings so it is important to be open and honest with them regarding your financial situation.

 What is a Secured Loan?

Secured finance refers to a loan that is ‘secured’ using an asset offered by the borrower to the lender as a form of collateral. Should the borrower fail to make the payments required, the lender will have the right to repossess the asset in order to recover the cost of the loan. Therefore the security offered needs to be of sufficient value to cover the full amount of the loan. Typically the asset will be property, however, many lenders will accept other high value assets.

Secured loans are typically used for home improvements, debt consolidation and raising funds for business. Due to the reduced risk to the lender, secured loans tend to have lower interest rates and borrowing costs that unsecured finance.

Falling Into Arrears

If you find you are having difficulty in keeping up with payments on your secured loan, it is important to contact the lender straight away to avoid repossession of your property. The following steps are essential:

• Contact your lender as soon as possible
• Evaluate your outgoings against your income
• work out which payments are most important
• Contacting an independent advisor could be very helpful to assess your best course of action
• Arrange an affordable payment plan with your lender

Most lenders will be willing to come to some agreement and set up a payment plan for those struggling with their payment obligations.

At What Point Will the Lender Start Court Action

For the majority of lenders, starting court proceeding is their last resort after all other options have been exhausted. Secured finance lenders will, in most cases, prefer to avoid costly and time consuming court proceedings and are more likely to want to come to a repayment agreement that you can afford.

If for any reason it does come to the point where the lender is proceeding with court action, you will be invited to attend the repossession hearing. During this hearing, attempts will be made to find a workable resolution. If no solution can be found, the court will issue a possession order against the borrowers property, giving the lender the right to repossess your property on a specific date. The property will then be sold to cover the full cost of the loan.

What Happens After Repossession?

The lender will sell the property in order to generate enough money to cover the borrowers debts, however if the sale does not cover the debt amount, the borrower will still be liable for the difference.