Can I refinance my secured loan if I can’t keep up with payments?

Facing difficulties keeping up with payments on a secured loan, such as a mortgage or a homeowner loan, is a stressful situation that requires urgent attention. Refinancing can potentially restructure your debt to make payments more manageable, but the success of this strategy hinges on the current status of your finances, the equity in your property, and your credit history.

Can I refinance my secured loan if I can’t keep up with payments?

The short answer is yes, refinancing is often possible, but it is significantly more complicated once you have missed payments or defaulted. When a loan is secured, it means the debt is tied to an asset—typically your home—which the lender can repossess if you fail to repay. This high level of risk means that both you and potential new lenders must approach refinancing with extreme caution.

The process of refinancing involves replacing your existing secured debt obligation with a new one. Lenders assess applications based on affordability, equity, and creditworthiness. If your credit report shows recent defaults or arrears (missed payments), mainstream lenders may decline your application, necessitating a turn towards specialist or adverse credit lenders.

Understanding the Immediate Risk of Missed Payments

If you are struggling to make payments, the most crucial first step is understanding the consequences of falling into arrears. A single missed payment impacts your credit file, but continuous missed payments can lead to your loan being defaulted, which triggers formal legal processes aimed at recovering the debt.

If you have missed payments, you must act quickly. Ignoring the problem will only worsen your financial position and make future refinancing options scarcer and more expensive. The mandatory risk warning for secured borrowing is vital to remember:

Your property may be at risk if repayments are not made. Consequences of default can include legal action, repossession, increased interest rates, and additional charges.

Initial Steps: Negotiation and Professional Advice

Before jumping straight into refinancing, which often incurs significant fees and charges, you should explore options with your current lender and seek independent debt advice.

Negotiating with Your Current Secured Lender

Most UK lenders have teams dedicated to helping customers experiencing financial difficulty. They may be willing to offer temporary solutions to ease your burden:

• Payment Holiday: A temporary pause or reduction in payments (though interest usually still accrues).
• Interest-Only Period: Temporarily switching to interest-only payments to reduce monthly costs.
• Loan Restructuring: Extending the loan term to reduce the monthly instalment size, though this increases the total interest paid over the life of the loan.

Contacting them demonstrates goodwill and a willingness to resolve the situation, which is better than ignoring calls and letters.

Seeking Independent Debt Advice

Before committing to a potentially long-term and complex refinancing deal, speaking to a professional debt advisor is highly recommended. Organisations like MoneyHelper (backed by the UK government) or Citizens Advice can provide free, impartial guidance on managing debt and assessing the best path forward.

For independent and free advice on dealing with debt, you can visit the MoneyHelper website.

Refinancing Options for Secured Loans in Arrears

If negotiation fails, or if the current arrangement is simply unaffordable in the long term, refinancing becomes a viable, if challenging, solution.

1. Remortgaging or Second Charge Secured Loans

The most common form of refinancing involves taking out a new secured loan (either a new first-charge mortgage or a second-charge loan) to pay off the existing debt.

• Remortgaging (First Charge): This involves replacing your current mortgage entirely. If you have missed payments, mainstream lenders may be hesitant unless the arrears are minor or historical. Specialist lenders, however, are often geared towards applicants with adverse credit, although their interest rates tend to be higher.
• Second Charge Secured Loan: If you cannot or do not want to replace your main mortgage, a second charge loan allows you to borrow additional funds secured against your property. You use these funds primarily to clear the arrears and possibly consolidate other unsecured debts. This option requires significant equity in the property and careful assessment, as you are now managing two secured debts simultaneously.

When refinancing, lenders will rigorously check your credit history to assess risk. Understanding what is on your file is critical before applying.

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2. Debt Consolidation Refinancing

If the reason you cannot keep up with your secured loan payments is due to being stretched by multiple other high-interest debts (like credit cards or unsecured loans), consolidating them into a single, lower-interest secured loan can be helpful.

While this approach significantly lowers the total monthly outgoing, it carries a major risk: you are moving unsecured debt (which carries no risk of repossession) onto a secured product (which does). If you struggle with the consolidated payment, the risk to your home increases substantially.

Key Considerations for Refinancing When in Arrears

Successfully refinancing when struggling with payments requires addressing several practical and financial hurdles:

Affordability and Stress Testing

UK lenders must adhere to strict affordability criteria set by the Financial Conduct Authority (FCA). Even if refinancing reduces your immediate monthly payment by extending the term, the lender must be satisfied that you can afford the new repayments, especially if economic circumstances or interest rates change. You will need to provide detailed evidence of income and expenditure.

Loan-to-Value (LTV) Ratio

The amount of equity you hold in your property is paramount. Lenders measure risk using the Loan-to-Value (LTV) ratio—the percentage of the property value that is currently borrowed. If property values have fallen or if your existing debt already accounts for a high percentage of the value, your options for further borrowing (refinancing) will be limited, particularly if seeking to cover existing arrears and fees.

Lender Fees and Costs

Refinancing is not free. You must account for significant associated costs, which may include:

• Early repayment charges (ERCs) from your current lender.
• Arrangement fees or product fees for the new loan.
• Valuation fees and legal fees (solicitors).
• Broker fees (if using a specialist finance broker).

These fees are often rolled into the new loan, increasing the total debt burden. It is essential to ensure that the immediate relief provided by the lower payment outweighs the long-term cost increase.

Specialist Lending and Adverse Credit

Mainstream lenders often operate strict criteria, particularly regarding recent credit issues. If you have fallen into arrears, you will likely need to engage with specialist finance providers, like Promise Money. These lenders assess each application individually and are better equipped to handle complex financial profiles, including those with:

• A history of missed mortgage payments or loan arrears.
• County Court Judgments (CCJs).
• Debt Management Plans (DMPs).

While specialist lenders offer solutions where others might not, their interest rates are typically higher to compensate for the increased risk they are taking by lending to borrowers with impaired credit history.

People also asked

Can I get a secured loan if I have a CCJ?

Yes, it is often possible, but you will typically need to approach a specialist lender rather than a high-street bank. Lenders will assess the age, value, and reason for the County Court Judgment (CCJ) to determine eligibility and the interest rate offered.

Does refinancing hurt my credit score?

Refinancing involves making a hard credit search, which can temporarily lower your score. However, successfully obtaining a new loan that allows you to manage your debt better and stop accumulating arrears will ultimately improve your credit profile in the long term, provided you maintain timely repayments.

What is the difference between refinancing and loan modification?

Refinancing involves taking out a completely new loan, often with a different lender, to pay off the old debt. Loan modification, or loan restructuring, involves working with your existing lender to change the terms of your current loan (e.g., extending the term or lowering the interest rate) without issuing a new facility.

What happens if I cannot refinance my secured loan?

If refinancing is not possible due to lack of equity or severe credit impairment, you must focus on maintaining communication with your current lender and seeking formal debt intervention. If payments cease entirely, the lender will start proceedings to repossess the secured asset (your property) to recover the outstanding debt.

Is it better to consolidate secured and unsecured debt?

Consolidating debts provides simpler monthly management and potentially lower interest rates overall, but you must be aware of the risk. Moving unsecured debt onto a secured loan means you put all that previously unsecured debt at risk of repossession if you fail to maintain payments.

Summary of Refinancing Challenges and Opportunities

Refinancing a secured loan when you are unable to keep up with payments is a serious financial manoeuvre. While it offers a pathway to debt sustainability by potentially reducing monthly payments or consolidating high-interest liabilities, it is rarely straightforward.

Success depends heavily on your property equity, your ability to demonstrate future affordability, and your willingness to engage with specialist lenders who cater to adverse credit profiles. Always model the total cost of the new loan, including fees and the overall interest over the extended term, to ensure the new agreement truly resolves your financial difficulties rather than just postponing them.

Remember that the fundamental risk of secured borrowing remains:

Your property may be at risk if repayments are not made. Therefore, securing professional advice before agreeing to any refinancing deal is paramount.