What is a Pay Plan?
A pay plan is something that is set up if you are struggling to pay something back. This could be an unsecured loan or a payday loan for example.
How do I arrange a Pay Plan?
Pay plans are usually arranged with the lender directly. This requires the borrower contacting the lender as soon as they are aware of a change of circumstances that may make it harder to pay the loan back.
You could ask for a change to the loan repayment amount you pay monthly into a more affordable payment plan.
For example, say you owe £500 in total to a lender on a credit card. You could set up a pay plan or an Arrangement to Pay that states you will pay approximately £70 for 7 months until it is paid back.
What if I owe money to a number of creditors?
It is possible to arrange individual pay plans with each creditor, agreeing on an amount you can feasibly pay each month. See advice from gov.uk.
However, if this feels too overwhelming and stressful to deal with, or you cannot pay the loan you could seek the advice of a debt management company.
A debt management company can help to consolidate your debts into one single loan, and contact creditors on your behalf. They can help to freeze interest and possibly other fees too, so you can get back on track with tackling your debt.
What is an Arrangement to Pay?
An Arrangement to Pay is when the borrower asks for the cost of one (or more) monthly loan repayments to be reduced. This may mean the overall loan term is increased or the overall cost of future monthly payments becomes higher.
Can an Arrangement to Pay affect my credit score?
Yes. An Arrangement to Pay is recorded on your credit file if the request to lower the loan amount is approved by the lender.
How can an Arrangement to Pay affect my ability to obtain credit?
How much it impacts your ability to get credit will depend on the lenders.
This is because certain lenders could see it as a sign that you are struggling to manage money effectively and pay debts when they are due.
However, other lenders take a much more relaxed approach about an Arrangement to Pay. They would prefer to receive lower payments than nothing at all.
Is an Arrangement to Pay the same as a default?
No, the two are not the same. Whilst depending on the lender the two can be viewed equally as severe, they are different from one another.
An Arrangement to Pay on your credit file indicates you have paid, whereas a default shows you as not paying the amount owed.
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