Signing up to an unsecured personal loan over just 48 months sounds really easy at the beginning. The reality is that an awful lot can happen in 4 years. If financial difficulties and growing levels of personal debt do become an issue, instant payday loans default is the likely outcome.
Statutory Default Notice and the Consumer Credit Act 1974
The Consumer Credit Act 1974 requires that any debtor that has defaulted on their personal loan must receive a statutory default notice from the lender. Whilst a statutory default notice can lead to legal action, it is usually only sent out to advise a debtor that there has been a personal loan default. Try to reach an agreement with a creditor to catch up with any arrears on the personal loan before matters progress.
The Role of Debt Collection Agencies and Loan Default
A debt collection agency won’t normally be used until several months of repayments have been missed. The first indication that a debt collection agency is being used is a letter in relation to the personal debt from a party that isn’t yet recognised. Whilst some debt collection agencies are owned by financial institutions, the majority are completely separate entities.
What many people don’t realise is that difficult loan default cases are sold-on to debt collection agencies. What’s more, loan default accounts only cost debt collection agencies 15-20% of the debt’s value; the remainder is written off against taxes.
Personal Loan Default, Debt Collection Agencies and Creditor Harassment
Although debt collection agencies are supposed to adhere to the rules, creditor harassment isn’t uncommon. Constant telephone calls and someone knocking at the door for hours constitute forms of creditor harassment. Many debt collection agencies pretend that they have powers that are not actually available to them.
Full and Final Settlements
Those that have money available may be able to reach a full and final settlement with a creditor or debt collection agency. It is not uncommon for creditors to settle for as little as 30-40% of the loans value. Always remember to get a written agreement from a debt collection agency before making payment.
Personal Loan Default and Debt Solutions
Those that don’t have sufficient funds to reach a full-and-final settlement can still pursue a debt solution. Which debt solution is opted for will depend upon how much personal debt there is. An Individual Voluntary Arrangement is generally used for serious personal debt of in excess of £15,000. Debt management plans tend to be used for more modest personal debts.
Those that have received a statutory default notice as a result of loan default may be better-off pursuing a debt solution. This will normally stop debt collection agencies and any resultant creditor harassment. Creditors only seek to contact debtors quickly because the Limitation Act means that, if a debtor avoids his creditors for six years, the personal debt is no longer collectable.