What happens if I can’t repay a secured loan?
13th February 2026
By Simon Carr
A secured loan is financial product where the borrower pledges an asset—most commonly their property—as collateral against the debt. This arrangement provides the lender with security, meaning that if the borrower fails to meet the contractual repayment terms, the lender has the right to take legal action to recover the asset and sell it to recoup the outstanding debt.
What Happens If I Can’t Repay a Secured Loan?
For UK homeowners, secured loans—such as second charge mortgages or bridging loans—offer a means of accessing potentially larger sums of money than unsecured alternatives. However, the fundamental difference lies in the collateral. While an unsecured loan relies solely on your promise to pay, a secured loan ties the debt directly to an asset you own. Understanding the potential consequences of missed payments is crucial for any borrower.
The process that unfolds when you stop being able to repay your secured loan is governed by strict regulations set out by the Financial Conduct Authority (FCA). Lenders are required to treat customers fairly and follow specific steps before taking drastic action.
The Initial Steps When You Miss a Payment
The moment you miss a scheduled repayment, the process of recovering the debt begins. The lender will classify your account as being “in arrears,” which means payments are overdue.
Communication and Charges
Within a few days of the missed payment, the lender must contact you to inform you that the payment has not been received. They will typically outline the associated charges and interest accrued due to the late payment. These fees can quickly increase the overall balance you owe.
- Initial Contact: The lender must attempt to discuss the situation and explore why you missed the payment.
- Late Payment Fees: Contractual charges are applied immediately.
- Record Keeping: The missed payment will be recorded on your credit file, negatively impacting your credit score.
It is vital to communicate with your lender at this stage. Ignoring their calls or letters will only escalate the situation. Lenders may offer temporary forbearance (such as a payment holiday or reduced payments) if they believe your financial difficulty is short-term.
Entering Arrears: Formal Procedures and Implications
If you continue to miss payments, the situation moves from temporary difficulty to formal default procedures. The lender will issue specific formal documentation required under UK law.
The Default Notice
Once you are significantly behind (typically three to six months, depending on the loan terms and severity), the lender will issue a Default Notice under the Consumer Credit Act 1974. This document is highly significant:
- It formally declares that you have breached the loan agreement.
- It outlines the exact amount required to clear the arrears and restore the agreement (the ‘remedy period’).
- It usually gives you a minimum of 14 days to rectify the default.
If you fail to meet the demands of the Default Notice, the lender has the legal right to terminate the loan agreement and demand the entire outstanding balance immediately, not just the missed payments. This event triggers the start of legal action.
The Consequences of Defaulting on a Secured Loan
The most serious consequence of defaulting on a secured loan is the risk to the asset used as collateral. Unlike unsecured debts, the lender holds a legal charge over your property.
It must be stated clearly: Your property may be at risk if repayments are not made. The primary goal of the lender is to recover the debt. If you cannot afford to pay, they will initiate steps towards obtaining a court order for possession.
Other immediate consequences include:
- Increased Interest Rates and Charges: Lenders may apply higher default interest rates and administrative charges related to pursuing the debt.
- Legal Fees: You will generally be liable for the lender’s costs associated with seeking legal advice and issuing court claims.
- Credit File Damage: A formal default notice remains on your credit file for six years, severely limiting your ability to obtain future credit, mortgages, or even some jobs or insurance policies.
The Legal Process and Repossession
Repossession is typically the last resort for lenders, as the legal process is time-consuming and costly. However, if all attempts at resolution fail after the Default Notice expires, the lender will start court proceedings.
Applying for a Possession Order
The lender must apply to a UK county court for a Possession Order. You will receive notice of the court hearing. It is absolutely essential that you attend this hearing, as it is your only opportunity to present your case to a judge.
At the hearing, the judge will assess the situation. The court aims to prevent homelessness where possible and will usually look for reasonable alternatives to repossession if the borrower can demonstrate that they have a realistic plan to pay off the arrears in a timely manner. This might involve:
- Suspended Possession Order: The judge may grant a possession order but suspend it on the condition that you maintain future repayments and pay an agreed amount towards the arrears each month.
- Adjournment: The hearing may be postponed to give you time to sell the property yourself (often achieving a better price than a forced sale).
If the judge finds no reasonable prospect of the borrower repaying the arrears, they may grant an outright Possession Order, giving the lender the right to take possession of the property, sell it, and use the proceeds to clear the secured loan debt.
If the sale of the property does not generate enough funds to cover the secured debt, interest, and legal costs, you may still owe the lender the shortfall (known as a ‘shortfall debt’).
The Impact on Your Credit File
A failure to make secured loan repayments has one of the most severe impacts on your personal credit history. Missed payments, late payment markers, and especially a formal default will severely damage your credit score.
A default registration remains visible to potential lenders for six years from the date it was issued, regardless of whether the debt is subsequently repaid. This record signifies high risk, making future borrowing extremely difficult and expensive.
If you are unsure of the current state of your credit history, it is advisable to check your file regularly to monitor any changes and ensure all recorded data is accurate. Get your free credit search here. It’s free for 30 days and costs £14.99 per month thereafter if you don’t cancel it. You can cancel at anytime. (Ad)
Seeking Help and Finding Solutions
If you anticipate or are currently experiencing difficulty repaying your secured loan, taking proactive steps immediately is essential. The sooner you act, the more options you will typically have.
Speak to Your Lender
Contact your lender immediately. Explain your financial situation and ask about available options, such as restructuring the loan, moving to interest-only payments temporarily, or applying for a period of reduced payments (forbearance).
Seek Independent Debt Advice
Professional debt advice is often free, confidential, and unbiased. Debt charities and organisations can review your entire financial situation, negotiate with your lender on your behalf, and help you formulate a sustainable budget and repayment plan. They are experts in dealing with arrears and possession claims.
For independent and credible advice on dealing with debt and arrears, you can contact organisations such as MoneyHelper, the Citizens Advice Bureau, or StepChange Debt Charity.
Consider Refinancing or Selling
Depending on the equity held in your property and your overall credit score, you might explore refinancing the secured loan to consolidate it into a new, more affordable product. Alternatively, if your financial situation is unsustainable, selling the property yourself is usually preferable to forced repossession, as it gives you control over the sale price and timing.
People also asked
What is a ‘shortfall debt’ after repossession?
If the lender repossesses and sells your property, but the sale proceeds do not cover the full amount owed on the loan (including legal and selling costs), the remaining balance is called a shortfall debt. The lender can still pursue you for this unsecured debt, often for many years after the repossession has occurred.
How quickly can a lender repossess my home after I default?
The repossession timeline varies significantly but is not immediate. The lender must first issue a Default Notice (14+ days), allow time for resolution, and then seek a court Possession Order. This entire process usually takes several months, sometimes six months or more, giving the borrower critical time to seek help and solutions.
Do I have to attend the court hearing for a possession claim?
Yes, absolutely. Attending the court hearing is essential. If you do not attend, the judge will usually grant the Possession Order to the lender immediately. Attending allows you to explain your circumstances, challenge the lender’s claim, and propose alternative repayment arrangements directly to the court.
Does the type of secured loan affect the repossession process?
Can the court stop the lender from repossessing my property?
A court cannot legally stop the repossession entirely if you cannot afford the loan, but it can suspend the Possession Order if you can demonstrate that you can reasonably afford to meet future payments and pay off the arrears within a reasonable period, often two to five years, depending on the debt amount.
Conclusion
Secured loans carry inherent risk because the debt is tied directly to your assets. If you find yourself in a situation where you can’t repay a secured loan, the consequences can be severe, leading ultimately to the loss of your property and long-term credit damage.
The key takeaway is that early intervention is paramount. Communication with your lender, combined with timely, independent debt advice, offers the best chance of negotiating a sustainable path forward and preventing the escalation to formal legal proceedings and repossession.