The pre-default period
Missed payments trigger reminders and demands. Late payment fees may apply.
The lender is required to send a Notice of Sums in Arrears letter if you fall a set number of payments behind. This formally notifies you of the arrears situation.
Some lenders try to negotiate at this stage — accepting reduced payments to avoid formal default.
The default event
Typically after 3-6 missed payments (varies by lender and loan type), the lender sends a Default Notice. This is a formal legal notice under the Consumer Credit Act.
The Default Notice gives you 14 days to remedy the situation. If you do not, the account is formally defaulted.
A default appears on your credit file for six years from the default date and severely affects your credit rating.
Post-default collection
After default, the lender may keep the debt in-house and pursue you, or sell it to a debt purchaser (Cabot, Lowell, Arrow, Intrum, etc).
Debt purchasers negotiate payment plans. Some are more aggressive than others.
For larger debts (£1,000+), court action is more likely. A CCJ appears on your credit file for six years.
Options at default stage
Debt Management Plan: freezes interest (usually) and spreads payments.
DRO: for total debts under £50,000 with minimal surplus.
IVA: for higher debts with some surplus income.
Bankruptcy: for unaffordable debts.
Individual negotiation with the lender or debt purchaser for a reduced settlement.