Do I still need to pay my debts if my lender goes bust?

If a financial institution fails or goes into administration, it can bring up all sorts of questions and concerns for customers.

“What do I need to do if my lender goes bust?”

“Do I still owe them money?”

“Should I keep making my payments?”

Questions like these are valid and perfectly normal in such circumstances. Here, we explain what happens when an organisation like a bank, building society or lender goes into administration, and what this means if you owe them money.

What are the chances of my lender going bust?

Nowadays, a financial institution failing isn’t a common occurrence, but it’s not completely unheard of.

 A few household names have gone bust in recent years: Northern Rock (2008), Wonga (2018), and Juo Loans (2019) to name but a few.  

A bank, building society or lender going into administration doesn’t usually come out of the blue. Stories in the news about board members resigning, legal or regulatory troubles, and poor financial performance are public signals that a company may be on the verge of administration. Of course, such issues won’t always hit the headlines, so as a customer, you may not be aware that anything is wrong until the company files for administration.

What will happen to my debt if the lender goes bust?

If your lender does go into administration, your debt won’t simply disappear and you will usually still have to pay it back.

The administration process may result in the lender, along with its assets, which includes customer debts, being sold in part or whole to another company. It can take a while for this process to be completed. During this time, you’ll be kept in the loop throughout and will have the opportunity to ask questions if you’re not sure what this means for you.

Unless you hear differently from your lender, you should keep making payments towards your debt as normal while they go through the administration process. If and when you need to start using different payment details, your lender will let you know.

If you’re informed that your account – and your debt with it – has been transferred to a new owner, you can ensure a smooth transition by taking these steps:

• Contact the new provider - Do this to check that they have the correct contact details, payment details and account information on file for you – this includes your balance, payment amounts, and interest rate.
• Make sure you understand your repayment terms - If you’re sent a new loan agreement or terms and conditions to sign, read them carefully and ask questions about any requirements that look different from your previous agreement, or that you’re generally unsure about.
• Find out more about other products - During conversations with your new lender, find out about the products and services they offer. If you’re eligible, you may be able to transfer to a product with a lower interest rate, possibly making it cheaper for you to pay off the rest of your debt.

If your debt is transferred to a new lender, this doesn’t mean you have to stick with them. When you find out that your lender has gone into administration, you could use this as an opportunity to shop around and see if you could be eligible to borrow at a lower interest rate and consolidate your loans into one more manageable repayment. Many lenders offer free eligibility checks so you can see how likely you are to be approved without submitting an application, as that can affect your credit score.

What happens if I don’t make repayments?

The administration process will likely be a busy time for the lender that’s gone bust and those taking it over. Would they really notice if you stopped making your payments?

The answer to that is ‘yes’, they probably would. Many lenders have automated systems to monitor payments coming in and ensure your credit report is updated to reflect the payments you have or haven’t made. So, even if the people are busy, the computer systems would likely notice if you didn’t make a payment.

And even if the lender or administrator doesn’t spot that you’ve stopped paying straight away, it will likely catch up with you eventually, and the effect it has on your credit score could be worse by then. If the lender places a default on your credit report, it will stay there for six years, limiting your ability to access credit.

What if I experience financial difficulties?

If, while your lender is going through administration, you find that you’re not able to keep up with your repayments, there should still be a way for you to get in contact with them to discuss your options. Customer service phone lines are often kept operational for a while after a lender goes into administration, so help should be available if you need it. You can also speak to an impartial debt advice organisation like StepChange who can help you find a solution to your difficulties and take over communication with your lenders on your behalf.