Can a Secured Loan be Written Off? In-depth Guide & FAQs

Secured loans can be tricky to understand. But don’t worry; you’ve come to the right place. Every month, over 6,900 people visit our site seeking advice on secured loans.

In this guide, we’ll explore:

• What secured loans are.
• How secured loans work.
• The true cost of a bad secured loan.
• What happens if you can’t pay your secured loan.
• How to get out of a secured loan.

Secured loans can bring worries. What happens if you can’t pay? What happens after repossession? And can a secured loan be written off? We know these are big concerns for you. 

We’re experts in this field, and we’re here to help you make the best decisions about your money. So, let’s delve into the world of secured loans together.

What should I do if I can’t pay my secured loan?

If you cannot pay your secured loan, the first thing you should do is communicate your circumstances with your lender, who is required by law to treat you fairly and consider your circumstances if you face payment difficulties.

Most of the time, the lender does not want to repossess your home or vehicle and would rather find a workable solution. 

You might be able to reduce your repayments to make them more affordable while simultaneously extending your repayment period so you end up paying more back. This benefits both parties and avoids significant credit score damage and losing your asset to the debt. 

Can a secured loan be written off?

A secured loan can only be written off by the lender. If you are struggling to pay, you can ask the lender to write off your loan, but it is highly unlikely that they will agree. Having any type of debt written off voluntarily by the lender is rare, especially secured loans where there is an easier pathway for them to recover the debt. 

This forum user on MoneySavingExpert wants to know if their secured loan could be written off by the lenders as they are struggling with the repayments.

Can you cancel a secured loan?

Most secured loans cannot be cancelled. If your lender does not agree to write off the debt, you will need to come up with a way to pay. 

However, there is one exception to this rule. Those who have taken out car finance to pay for a vehicle over time may be allowed to cancel the secured loan and return the vehicle after so many payments have been made. If you want to cancel a secured car loan, you may want to look into this loophole and check your own car financing credit agreement for details. 

What happens if I don’t pay my secured loan?

If you miss a secured loan payment, the lender will write, email or call to ask you to make a payment swiftly. If you ignore this communication and don’t make the payment in good time, the lender can record a default on your credit file, reducing your credit score. 

Payment defaults will make it more difficult to take out further credit in the future, such as personal loans, credit cards and mortgages. However, if you manage to make the payment after the reminder is sent, the payment default may not be reported, and your credit score won’t be affected. 

If you are unable to pay the loan repayment and continue to miss further repayments, resulting in multiple payment defaults, the lender may decide to repossess the asset you listed as collateral in the loan agreement. 

What happens to a secured loan after repossession?

After your asset is repossessed, it will be sold by the lender. The money raised from the sale of the asset is used to pay your debt, including your arrears (missed payments), remaining capital owed, late fees and interest. You may also need to cover legal costs, auction house fees and more. 

There is a chance that the sale of the asset will not cover all of these things. In the event that there is not enough money to pay all of the above, the lender can chase you for the remaining debt. On the other hand, if there is enough money to settle all debts with the lender, any remaining funds will be given back to the debtor. 

Can you get out of a secured loan?

Despite not being able to force the lender to write off the debt, there are still ways you can get out of a secured loan. There are three possible ways of escaping your secured loan without having your asset taken, some of which provide quick results while others take longer. 

They are:

1. Renegotiating repayments to make them more affordable (as mentioned above)
2. Selling your asset and using some of the money to pay off the loan, keeping in mind any early repayment fees. This can be beneficial because it avoids any fees payable if the lender has to sell the asset for you. Moreover, having property repossessed can make it difficult to buy another one with a mortgage. 
3. Using a debt consolidation loan

Can I include my secured loan in a Debt Management Plan?

A Debt Management Plan (DMP) is a debt solution that merges multiple debt repayments into one monthly payment, often negotiating a reduced payment or a freeze on interest in the process. It can make debt repayments more manageable and cheaper, avoiding the need for the lender to take further action. 

Unfortunately, secured loans cannot be included in a DMP. This type of debt solution cannot include any type of secured loan, Student Finance debts or HMRC arrears. One of the other popular debt solutions for people on a low income, namely a Debt Relief Order, can also not be used against secured loans. 

Can you sell your house if you have a secured loan against it?

Many secured loans ask the individual(s) to use their property or home equity as collateral in a loan agreement. This means their property is at risk of repossession if they cannot keep up with loan repayments. 

But what if you have an outstanding secured loan against your property and you want to sell it? You could sell the property and use some of the funds to repay all of the secured loan, but you will want to keep in mind any early repayment fees within the credit agreement. 

If you are selling the home and moving straight into a new one (a purchase, not a rental!), then some lenders will allow you to secure the new property or new amount of home equity against the ongoing loan. This can be somewhat complex, and you should get advice before making any moves.