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.

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. 

This guide explains general options; obtain free, independent debt advice for your own agreement and circumstances.

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. 

The lender may consider forbearance such as an affordable arrangement, but a longer term can increase costs and arrangements may affect the credit record. Neither unchanged credit nor avoidance of repossession is guaranteed.

Can a secured loan be written off?

A lender can agree a write-off or settlement, but it is not the only possible legal route affecting liability. Complaint redress, enforceability disputes and an unsecured shortfall after sale can raise different issues. Do not stop payments on an assumption; obtain specialist advice.

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?

Cancellation, withdrawal and early-settlement rights depend on the agreement and applicable law. A cancellation or withdrawal right does not normally mean keeping borrowed money without repayment.

For a regulated hire-purchase or PCP agreement, voluntary termination is a statutory right, not a loophole. Liability is generally capped at half the total amount payable, subject to the agreement, arrears and taking reasonable care of the vehicle; you may need to pay up to that figure. It is not based simply on completing half the monthly payments.

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

Missed payments can be reported as arrears. Credit-file defaults and formal legal notices are separate matters, and their timing depends on the agreement and circumstances. See related guidance.

Paying after a reminder can prevent further arrears but does not guarantee that the missed payment will be absent from your credit record.

The loan is secured on the property. Missed payments can lead to repossession through the applicable legal process; security does not remove affordability checks or give the lender an automatic right to take the home without that process.

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?

Possible options include affordable arrangements, repayment or an agreed sale, depending on the circumstances. None automatically removes the debt or guarantees that the asset is protected.

They are:

1. Renegotiating repayments to make them more affordable (as mentioned above)
2. A voluntary sale may allow repayment, subject to settlement requirements, security release, sale costs and any shortfall. Get advice before committing to a sale.
3. Consider refinancing only after comparing costs and affordability with a debt adviser; new credit is not a routine solution to priority arrears.

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

A DMP is an informal arrangement for eligible unsecured debts. Creditors may agree reduced payments or freeze interest, but are not automatically bound and can still take recovery action.

Mortgage and secured-loan payments remain priority commitments outside a DMP. In England and Wales, a DRO does not remove secured creditors’ rights and homeowners are ineligible. An unsecured shortfall after sale or repossession needs separate advice. See related guidance.

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.