What to do When You Can’t Repay Your Loans



Most people accumulate a series of loans based on their current financial situation. Typical loans consist of student loans, a mortgage, car loans, and personal loans.  While at the time of borrowing the money, you are certain you can make the repayments, life happens, and there may no longer be money in your budget to make all these installments. 

This can be because you lose your job or simply because the rising cost of living stretches your budget. 

What Happens When You Don’t Pay Your Installments

Whatever your reason, defaulting on your loan repayments will have serious consequences. When you miss a payment, the lender will usually reach out to you inquiring about the missed payment, while issuing  a warning that legal actions would be taken against you once you fail to make payment on the stipulated date.

 If you’ve provided collateral, the lender may seize your asset if you’ve missed payments for several months. Additionally, you will be charged additional fees and penalties, and the amount you owe in interest will also increase. Non-payment will also harm your credit score, making it harder for you to borrow money in the future.  

What You Should Do When You Can’t Repay Your Loan

While it is incredibly stressful not to have the funds to meet all your financial obligations, don’t panic. There is help, and there are steps that you can take to remedy the situation. 

It is best to act as soon as possible instead of allowing the unpaid loans to build up.

As soon as you know you can’t make your repayments, you must advise the lender. You may think that ignoring the problem is easier, but in the long run, this is the worst thing you can do. 

Instead of waiting for the lender to contact you to ask for a payment, reach out to the lender and let them know about your situation. They will likely be willing to work with you if you let them know upfront. Depending on the situation and the lender, you may have the option to pay in full or settle.

If the lender agrees to a settlement, they will allow you to pay a portion of the money you owe in a lump sum that is usually over 75% of the total amount you owe. The terms and amount can be negotiated, but if you are open and honest from the get-go, you are more likely to get a favorable outcome. 

Loan Repayment Options

If you’ve contacted the lender and they are unwilling to enter into a settlement agreement, or you still can’t afford to pay the settlement amount, you still have a few other options you can look into.

Minimize the Amount You Owe

If you have several loans, you must first review what you owe on each loan and the fees and interest associated with it. Prioritize paying off loans that have the highest debt first. This way, you reduce the amount of interest that builds up over time. 

Consolidate Your Debt

Consolidating your debt is a good option that makes it easier to manage your loan repayments. This is particularly helpful if you have a few small loans. Consolidating your debt entails taking out one big loan and using that money to pay off all the smaller loans. 

This means that your smaller loans will be paid off, and you will only now have to pay one loan back. When looking for a loan to consolidate the other loans, ensure the interest rate is lower than that of your other loans, as it will not make sense if you end up paying more. 

Cut Back on Unnecessary Expenses

Look over your budget and keep close tabs on your spending, even if your budget is completely stretched and it looks like  there is no way to cut back. Keeping a journal where you document every dollar you spend can be an eye opener. 

Little amounts add up, and making sacrifices in your lifestyle just until your loans are repaid will benefit you in the future. 

Sell Unused Stuff

The preloved or second-hand market can be highly lucrative. Most folks have things around the house that are in good condition but aren’t used. These items can be sold, and you can use the money to pay off your debt. 

While you may not make enough money selling your things to pay off the loans completely, you will probably be able to put some money towards paying them off.  Selling things online is easy, but you must take precautions to protect yourself against being scammed.

 If you accept a wire transfer, make sure the money is reflected in your bank accounts before you send the item, for example. 

Consider Credit Counseling

Having debt that you are unable to pay can be extremely overwhelming. It is worth seeing a credit counselor if you’ve exhausted all options and don’t see a way out. You can make an appointment with a credit counselor at a non-profit credit counseling agency who can offer you guidance. 

A debt counselor will review your finances with you and help you work on a solution to help you get out of debt. They can also give you advice on how to manage your money better so that you don’t have problems in the future. 


Thebalance: What You Can Do When You Can’t Make a Loan Repayment

Uswitch: What Happens if I Can’t Repay my Loan?

Lendingtree: What Happens if Your Personal Loan is Not Repaid?

Nolo: Options if You Can’t Pay Your Debts

Investopedia: Digging Your Way Out of Debt in 8 Steps


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