Steps to take if you cannot repay your loan

Life is full of surprises, and you must be prepared for any scenarios. This is the same for loans. So have you asked yourself what you can do if you cannot repay your loan? Or maybe you know someone who is already in this quagmire, or you are even there right away. 

Many times, when seeking loans, one tries to make every calculation in place to pay the loan on time to avoid defaulting, which may lead to more penalties or even losing your collateral, and maybe facing a possible arrest or jail time as the case may be.

While the majority of people don’t plan for the scenario of not being able to pay back a loan, this is indeed a possibility, and it must be looked into. Defaulting on a loan can be an excruciating experience, especially for those who have a reputation to protect. 

But knowing what to do in this case, be it now or in the future will have a great impact and make a difference in the overall outcome.

Fortunately, there are a variety of options to consider in this regard. And it will interest you to know that not being able to pay back a loan is not a dead end as many think.

This article talks extensively on what to do when you cannot pay back your loan,

Why take a loan in the first place?

To some, the topic of taking a loan from any financial institution seems like a nightmare. 

But at one point in your life, you may be forced to adopt this option to solve an immediate financial need. 

Almost everyone, including business entities, and the so-called elites in the society that you admire take loans in one form or the other. 

While taking a loan may not be bad, the motive must be thoroughly scrutinized.

One should take out a loan to service a contract or even begin a business. This as we all know is the secret to many successful businesses. They run on loans from financial institutions to execute contracts and expand their operation. As an individual, one can apply for a loan to invest in something less volatile but with a high return on investment.

A more vivid example is a loan from cooperative societies. These loans have very low interest rates and offer a year-long repayment plan. 

Most members take these loans and invest them in their businesses or even in landed properties. This of course will yield now more than the capital and interest combined.

Loans are a good way to increase capital and cash flow. But one must know the red flag in borrowing.

Bad debts vs good debts

While loans seem to be part of life, not all loans are good. Using loans irresponsibly can have dire consequences, and it can also be one of the best ways to create and manage wealth when used properly.

For a bad debt, the intent is usually for things that will not increase in value with time. Imagine taking a loan to service a liability, like buying that dream car. While this may seem nice to you, the question you must ask is do I need this car urgently? Is it a necessity, and what value can it bring to my finances?

Good debts on the other hand bring wealth and high returns in the long run. When you borrow money for a mortgage, for a business, or even to buy a landed property, these are considered good debts.

So having said this, there is also the possibility of not being able to pay these loans. Even a well-thought business projection could turn out to be a disaster. Many unintended circumstances may arise that might plummet one’s finances. This and many more are the reasons why it’s important to insure your loan by knowing what you must do when it does happen that you were not able to pay a loan as at when due.

 5 Steps to take if you cannot repay your loan

If you are stuck and can’t meet the deadline for your loan, simply follow these five steps outlined below. But in each case, you must know that personal initiative and intuition must be employed too.

1. Contact  your lender immediately

This is the first and most important step to take when it occurs you can’t repay your loan.

Your lender may have options that might help you, but first, you must be sincere and make them believe your claims or reasons for defaulting.

2. For a secured loan, look into loan refinancing

Refinancing your loan means looking for another low-cost personal loan that offers a long-term repayment option to offset this previous loan. This option should be considered in cases where the loan is secured, and your collateral is at stake. If you don’t want to lose your collateral, you may opt for this.

3. Reach out to a credit counselling agency

If you’ve already missed payments on your loan and it’s too late, you might choose to enrol in a credit counselling session at a nonprofit organization. Your credit counsellor will review your financial situation, identify the cause of the issue, and collaborate with you to develop a plan of action for paying off debt.

They might also be able to stop or eliminate collection calls, cut your interest rates, and make your monthly payment more bearable. However, be wary of con artists who offer to magically erase your debts.

4. Ask about loan payment deferment

If your financial struggles are temporary, it is just a matter of a missed payment or two, ask the lender about temporary loan payment deferment.

If it’s a short-term situation, they might be willing to defer the repayment for a month.

5 Seek the help of families and friends

Another option here is to seek help from relatives and friends. 

While this option may not be suitable for some, it has proven to be a good option over time. 

There may be friends and relations who will be willing to help. But they must know you’re in such need. Go to them and explain to them the plight you’re in. Ask them for help, and be persuasive too. 


Life can sometimes be unpredictable. When one takes a loan, it is intended to pay it back as when due. But when it turns out to be the contrary, you must be proactive enough in order not to allow it to spiral out of control.

With several options available, one can easily forge ahead and be able to get over it.

If you apply any or all of those options listed, you may see yourself overcoming this setback within time and see yourself back on your feet. 

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Paul Umukoro

Paul Umukoro

Paul Umukoro is an astute content writer with He writes mostly on hot, contested, and valuable topics in business, finance, and technology. He majored in computer science.

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