What does a default notice comprise of?
When an individual fall behind in payments, the creditor issues a formal warning that the account is about to default. This formal letter sent gives an individual a minimum of two weeks to be able to make up for any missed payments. If the payments are made on time the account continues as normal. On the other hand, if the individual is unable to repay the missed payments, the account goes into default.
As a norm, any default notice is issued when an individual has paid less than the required sum or missed payment within a span of 3 to 6 months.
A default notice is only applicable to debts that come under the Consumer Credit Act. These include personal loans, store cards, credit cards, hire purchase and payday loans.
Does getting a default notice have an impact on credit rating?
The issuing of a default notice per se will not impact the credit rating. However, if and when the account is declared default it will affect the credit rating. Once the marker of the default is entered in the credit file, the credit rating score will be updated by credit agencies.
Having a default will indicate that an individual has not made their payments within the schedule. When the individual decides to apply for any credit later, the creditors will see the default entry. This will make them assume that the individual is of high risk and unlikely to repay them.
Consequently, it becomes more challenging to get products like a new credit card, apply for a loan or even open an account in some banks. Similarly applying for a new mortgage will also be difficult.
If any debt taken by an individual comes under the Consumer Credit Act, a default notice letter must be sent to the entity. This is to provide ample time to repay before the default is added to their credit file.
What to do when a default notice is received?
It will be probably the creditor will ask for the full repayment of the debt in place of the earlier instalments agreed upon earlier. As the debtor, an attempt could be made to offer to repay in instalments at an affordable rate. However, it is unlikely the creditor will agree.
Some of the other actions a creditor is legally entitled to take in case of an account defaulting include:
- Taking the matter to the judiciary.
- Handing the case over to a debt collection company.
- Ask the court for permission to repossess any goods if bought under hire purchase.
If the debt falls under the purview of the Consumer Credit Act, any creditor is not permitted to take any of these steps until and unless there is an account default.
If as a debtor you are bothered about not being able to meet your payments schedule and possibly getting a default notice, our experts will be glad to be of service. We offer free customised advice on dealing with such issues.
Please contact us on +44 (0) 121 442 5330 or email@example.com