A default on a loan usually occurs after multiple missed payments or a missed payment that remains unpaid for 60 days (or more). A late payment is usually between 14-60 days and whereas they do impact your credit score, a default will have a far greater effect.
If you’ve missed a repayment, or you know you can’t afford to make one, you should contact your lender as soon as possible. Lenders will often want to work with you to figure out a repayment plan that you can afford, as opposed to having you default on your loan.
What is a default?
A default on a loan usually occurs after multiple missed payments or a missed payment that remains unpaid for 60 days (or more). When a secured loan defaults, you could risk losing your asset(s). You’ll normally get a default notice to inform you that your lender expects you to contact them, or pay money owed within a timeframe before the default is issued. If you’ve had a default notice, contact your creditor as soon as possible. If the default is then issued, you could risk having court action taken against you. A default lasts for 6 years on your credit report from the date of issue.
If I’ve defaulted because I can’t afford repayments?
As more people find their finances impacted by the coronavirus epidemic, it was announced on 17th April that motor finance companies would be able to offer a 3-month payment holiday to customers struggling to make repayments.
Agreed payment holidays won’t impact your credit score, as Transunion, Equifax and Experian work to protect customers who’ve fallen on unexpected financial difficulty. This means if you need to take a payment holiday, you are able to do so without it impacting your credit report negatively.
What impact will a default have on my credit score?
If you’ve already defaulted on your loan, you should try and set up a repayment plan as soon as possible, contacting your creditor to explain your financial situation and working with them to reach a resolution. Defaulting on a loan, or taking a payment holiday without a formal agreement with your lender will have a serious impact on your credit score.
You can add consumer statements to your credit report. They’re often used following a denied dispute of information on your report, but if the information is accurate you can use a statement to provide context. You can add a 100 word statement giving context and reasoning to your default. This won’t change your credit score, but providing the additional information could help with any future credit applications you might want to make.
Can I still get finance if my credit score has been impacted?
When you apply for finance with Red Potato, we take your credit score into consideration but will base our decision on your current financial situation and ability to repay the loan. We will still consider applicants who have defaulted on loans, understanding that there are many reasons why you might have bad credit. We aren’t here to judge and will work to help you get car finance whatever your situation.
A member of our team will provide continued help and support during each stage of your car finance application. We will take a look at your credit score, and perhaps your current situation, including your income and expenditure and what you can realistically afford. As a car dealership, we can also recommend what car types and models would be a suitable option for you, whilst introducing you to some of our latest deals.