What is a Default?
A default is when your lender closes or restricts your account and is incurred following multiple consecutive missed payments on a credit agreement that you have entered into.
A default is incurred following multiple consecutive missed payments on a credit agreement that you have entered into. Once you get to between 4 and 6 payments behind the lender may register your account as `defaulted`. This can occur on most kinds of finance including: credit cards, personal loans, store cards, car finance agreements, home owner loans and mortgage agreements. It basically means that you have not kept to the terms of the credit agreement you entered into with your lender. One thing you can do to shed a more positive light on your credit profile if you have already incurred the default is to settle it as soon as possible. At least then any lender can see that you managed to pay the debt off – as it will show as `status satisfied` on your credit report.
Negative Impact Of Receiving A Defaults
In most cases you will receive a penalty charge for missing a payment on any credit agreement. If your account goes into` Default Status` it can also have a big impact on your credit rating – limiting any future finance options. Continuing to miss payments can also result in a county court judgement on unsecured debt and continuing to miss payments on a mortgage or car finance loan could result in repossession of the home or vehicle respectively. These are the short term impacts, unfortunately the trouble does not stop there because credit reference agencies will leave the default showing on your credit record for 6 years before it can be removed.
“There are still plenty of loan and mortgage providers who will consider lending to people who have missed payments or even defaults.”
Paul Carley MD of First Choice Finance
What To Do If You Get A Default?
If you miss a payment you need to ensure you get caught up on your debt and not miss any other payments in the future. People have missed or late payments for all sorts of reasons. It may have been an administrative mistake on your or the lenders part part, if this is the case consider setting up an automated payment such as a direct debit.
If you have incurred a default because of a problem with affordability then you need to consider your finance in more detail, if it is a short term cash flow problem, call your creditors and discuss the problem with them, if it is a bigger affordability problem you may consider restructuring your finances with the use of a debt consolidation remortgage or a larger loan to refinance your debts. Extending the debt term could reduce your monthly debt payments but you will normally end up paying more in interest overall.
Can I Get Additional Finance Or A Mortgager If I Have A Defaults?
If you are having trouble meeting current payments additional debt should be considered very carefully, although you may consider restructuring your existing debts, with the use of a debt consolidation loan or mortgage. Defaults will have an impact on your finance options – many high street lenders will not approve applications from borrowers with recent defaults. However some specialist lenders are still offering competitive mortgages for people with recent defaults. Loan to values are restricted to about 80% maximum for clients with between 1 and 5 defaults in the last 24 months, these plans are also subject to credit scoring.
Paul Carley MD of First Choice Finance says; “There are still plenty of loan and mortgage providers who will consider lending to people who have missed payments or even defaults. However the key is to gather all the facts and figures before you accept any offer of finance. The most important areas to consider are you being able to afford the loan and making sure that the new finance puts you in a better position overall.”