If you’ve ever applied for an item of credit, there’s a good chance you’ll have seen or heard the word ‘default’ being used.

A lender may state something like:

“if you fail to make the scheduled repayments of this loan, this may lead to a default being reported on your credit file.”

A default (or default notice) is a formal letter addressed to a debtor who has missed payments on a piece of debt.

Each lender will have their own default process. Some may wait until multiple payments have been missed before they send the default notice, others may send them after a single missed payment.

However, a lender will always look to exhaust all communication strategies before defaulting the debt. This will include calling you several times as well as sending texts or emails. Ultimately, the lender will give you the chance to recover the debt before defaulting it.

The default notice will outline several things, including:

  • The type of agreement you’ve entered
  • The terms of the agreement and that you’ve broken.
  • The total outstanding balance of the account
  • The deadline for recovering the outstanding balance
  • The outcome(s) of failing to comply to the request
  • When you must respond by.

It will also clearly state that it is a ‘Default notice served under section 87(1) Consumer Credit Act 1974’.

With the default notice, the creditor should also include an FCA information sheet. This will explain how you can get free debt advice.

If you fail to respond to the default notice by the deadline, this can lead to further consequences including a Count Court Judgement (CCJ).

In addition, rather that chasing the payments that you’ve missed, they will simply request the full amount that you owe them.

Having a default on your credit file may lower your credit score and impact your chance of obtaining credit in the future. The default will usually remain on your file for six years, regardless of whether it is settled.

If you’ve missed a payment, contact the creditor and explain your situation to them as soon as possible. The lender will be much more accommodating if you’re honest an up-front about your payment issues. They may be able to work out a payment plan that fits your budget or offer an alternative solution.

It’s important to avoid burying your head in the sand where debt is concerned. A lender is much more likely to issue a default notice if they’re unable to contact you.

If you’re unsure about anything and would like to seek advice on your situation, visit moneyadviceservice.org.uk.

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