Every year, millions of Americans borrow money through credit cards, payday loans, and secured loans. It’s not uncommon for around 20% of people to struggle with making their monthly payments, resulting in being pressured by their lenders.

During these tough times, many households receive numerous phone calls, messages, and arrears letters without knowing their consumer rights or how to handle the situation. We want to help you by providing a helpful guide below that will give you a better understanding of your rights as a borrower when facing financial difficulty.

How to Communicate with a Lender

• Ask the lender for an explanation if your loan is declined.
• Request the lender to freeze your repayment if you are struggling to pay.
• Consider making a minimum repayment to avoid additional fees.
• Ask the lender if they offer arrangements to pay smaller amounts over a longer period of time.
• Request that automatic payments be stopped from leaving your account.

If you have recently been declined for a credit card or loan, you can reach out to the lender via email or phone to inquire about the reasons behind the rejection. It is your right as a consumer to seek clarification on this matter. Understanding the lender’s perspective can provide valuable insights into the areas of improvement needed in your financial status, such as creditworthiness or affordability.

If you are facing difficulties in repaying your loan, whether it’s a personal loan or mortgage, you have the option to ask the lender to freeze the interest. Make sure to communicate this request a few days in advance, as terms and conditions may apply. Some lenders may offer the possibility of deferring payments to a later date and freezing the interest, which can prevent additional interest from accruing. However, be aware that late fees may still be applicable, depending on your specific loan agreement and the lender’s policies.

In certain cases, you may be eligible to request a payment holiday, although this is less common for personal and unsecured loans. However, for a mortgage, you can inquire about taking a “month off” from repayments, and there may be a specific limit on the number of holidays allowed per year.

For certain types of loans, such as credit cards, you may be able to make a minimum payment. This means you would only need to pay a percentage of the month’s outstanding balance (e.g., 10%) without incurring additional fees or falling into arrears. Keep in mind, though, that the full outstanding amount will still be due for repayment at a later date.

If you find it challenging to meet your loan’s repayment requirements, you can discuss the option of an “arrangement to pay” with your lender. This arrangement would involve breaking down the loan into smaller amounts and extending the repayment period to make it more affordable. It’s essential to be aware that this arrangement will be reported on your credit score and may affect it negatively. However, it can help you avoid penalties and added interest.

Lastly, if you have set up recurring payments with your bank account and wish to stop the lender from deducting payments for this month and the following month, you can request both the lender and your bank to halt these transactions. This action is known as ACH authorization. Should you require the funds for your own use or to pay off other debts, you have the right to prevent the lender from taking money. Nevertheless, please note that this may lead to your account being in arrears, and the outstanding amount will still need to be repaid at some point.

Can a Lender Repossess Your Home?

If you have taken out a secured loan or mortgage and have fallen behind on your repayments, it’s important to know that the lender may have the right to repossess your home. Their aim is to recover the money they have lent to you so far.

Repossession is a last resort for lenders as it is a costly process. Before resorting to repossession, the lender will usually take several other steps such as sending emails, letters, making phone calls, and offering payment arrangements.

Is it possible for a lender to take you to court for missing repayments?

Although it is not very common, there is a chance that a lender may take you to court if you have missed repayments. If this happens, a county court judgement (CCJ) will be placed on your credit report for 6 years, serving as a reminder.

However, it’s important to note that this is usually a last resort for lenders, when other methods of communication to collect the funds have not been successful.

How to Stop Unwanted Phone Calls and Letters

If you’re feeling overwhelmed with phone calls and letters due to missed payments and want to put an end to them, there are some steps you can take.

1. Communicate with your lender – Keeping open lines of communication with your lender can be helpful. As regulated entities by the FCA, they are obligated to provide forbearance and assistance to those facing difficulties. Ignoring their attempts to reach out may only lead to more communication in their attempt to recover the funds.

2. Clear your outstanding balance – Once you’ve paid off your balance, the lender will no longer contact you. While it may not be possible to do it all at once, there are strategies like balance transfer credit cards and debt consolidation loans that can help you consolidate your debt.

3. Consider debt management – If you’re struggling with multiple debts, seeking help from a reputable debt management company can be beneficial. They will combine all your debts and create a budget that suits your financial situation, allowing you to pay off each debt gradually. This will also put an end to any further communication from lenders.

4. Seek free and impartial advice – You can find free debt advice from reliable sources such as ConsumerCredit.com and NFCC.org.