Missing a Personal Loan Payment: Arrears, Defaults and Your Rights

Missing a personal loan payment is worrying, but what follows is a defined process rather than an instant penalty. Your lender has legal obligations about what it must send you, how much time it must give you and how it treats you. Knowing the sequence helps you act early, because a missed payment, arrears and a default are three different stages with very different consequences.

Missed Payment, Arrears and Default: What Each Term Means

A missed payment is a single instalment that was not paid on its due date. One missed payment does not make you a defaulter, but your lender will notice and may contact you.

Arrears means your account is behind: you owe payments that should already have been made. The shortfall is often measured by the number of payments or months you are behind.

A default is a formal marker that the lender no longer expects to recover the debt under the original repayment schedule. It usually follows unresolved arrears and is more serious on your credit file. Before a lender can demand earlier payment of the full balance for a breach of a regulated agreement, the law requires it to send a default notice first.

What Your Lender Must Do: Notices, Time to Pay and Fair Treatment

The Consumer Credit Act 1974 sets out the sequence. A lender cannot, because of a breach of a regulated agreement, demand earlier payment of a sum or take certain enforcement steps until it has served a default notice. The notice must be in a prescribed form, must state the breach and what you need to do to put it right, and must explain the consequences of not complying. Any date it gives you must be at least 14 days after the notice was served.

That window matters. If you take the action the notice specifies before the date given, for example by paying the arrears, the breach is treated as if it never happened.

When a lender notifies you that you are in arrears or default, it must include a copy of the relevant information sheet, as required by the Consumer Credit Act 1974. The Financial Conduct Authority (FCA) publishes these sheets, and lenders must use the versions effective from 25 October 2021. They explain your rights and where to get help.

The FCA also expects lenders to treat customers in arrears or default with patience and consideration, and to look out for signs of financial difficulty rather than simply pressing for payment.

Watch out

A default notice gives you a deadline of at least 14 days. Diarise it and act before it passes.

How Missed Payments and Defaults Show on Your Credit File

Lenders pass account information to credit reference agencies. A late payment is recorded as such. If you fall behind, the account is shown as being in arrears, usually with the number of months outstanding. A default is a separate, more serious marker on your file.

Both arrears and a default can make future credit harder to get or more expensive, because lenders read them as signs of past difficulty. If a record looks wrong, complain to the lender that reported it first. If you are unhappy with the outcome, you can take the complaint to the Financial Ombudsman Service, which investigates complaints about banks and building societies.

Charges and What Your Agreement Says

Falling behind can cost more than the payment itself. Your credit agreement sets out the interest and any charges that apply to your account, so check any charge against what it says. If a charge seems wrong or was applied in error, question it: effective complaints handling is something the FCA expects from lenders.

Your Options When You Cannot Pay

• Contact your lender early. Explain why you are struggling and make a realistic offer. It is easier to agree a plan before arrears build up than after.
• Get free advice. Citizens Advice and other free debt advisers can help you budget, prioritise debts and negotiate with lenders. If a lender failed to follow the rules when you applied, for example by not checking you could afford the repayments, it might have to cancel or write off the debt.
• Ask about Breathing Space. This is a scheme that can pause enforcement action for a limited period while you receive debt advice. A debt adviser can tell you whether it could apply in your situation.
• Complain if you are treated unfairly. Raise it with the lender first, then take it to the Financial Ombudsman Service if you are unhappy with the outcome.
• Be cautious about new borrowing. A consolidation loan will not fix a payment you cannot afford. Read debt consolidation loans: when they help and when they don’t before borrowing to clear arrears.

If your loan is unsecured, no property is directly at risk, but the consequences of ignoring arrears are still real. Our guide to secured vs unsecured loans explains the difference. If you are comparing costs later, our guide to representative APR explains why the rate you are offered may differ from the advertised one.

Your questions

What is the difference between arrears and a default?
Arrears means you are behind on payments you should already have made. A default is a formal marker that the lender no longer expects repayment under the original terms, and it usually follows unresolved arrears. A default is the more serious of the two on your credit file.

Can a lender demand the full balance immediately after one missed payment?
Not for a regulated agreement covered by the Consumer Credit Act 1974. The lender must first serve a default notice in the prescribed form, and it cannot take the action described in it until at least 14 days after the notice is served.

What should I do if I receive a default notice?
Read it carefully, because it states what you must do and by when. If you pay the required amount or take the required action before that date, the law treats the breach as if it never happened.

Where can I get free help if I cannot pay my loan?
Citizens Advice and other free debt advisers can help you work out a budget and negotiate with your lender. A debt adviser can also tell you about Breathing Space, a scheme that can pause enforcement action for a limited period while you receive debt advice, and whether it could apply to you.