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The quick answer to this question is “yes”. This question was something everyone was asking during the 2008 financial crisis and again when the giant payday lender wonga went under.
So why then if the lender has gone out of business do you still have to pay back the loan, surely there is no one to pay it back to.
Unfortunately, just because the payday lender has gone out of business does not release you from your obligations to repay the entire loan back.
When a company goes cannot continue to trade it does not just switch off the lights, lock the doors and throw away the keys. In a lot of cases the business will go into Administration.
When you took out the loan you would have read (we hope) understood, (we expect) the terms and conditions of the short-term loan. In the terms and conditions there would have been something called a “transfer clause”.
In simple terms a transfer clause is a rule which allows the business to pass the outstanding debt to another party, so you will still need to keep up the repayments. There you go simple.
When Wonga went belly up due to losses which they incurred because of compensation claims and inefficient debt collecting practices The FCA (Financial Conduct Authority) made this statement:
“The FCA will continue to supervise Wonga once it is in administration and is in close contact with the proposed administrators with regard to the fair treatment of customers.”
“Customers should continue to make any outstanding payments in the normal way. All existing agreements remain in place and will not be affected by the proposed administration. However, the firm is no longer able to issue new loans.”
What happens when a business goes bust depends on if we owe them money or they owe us money?
Unfortunate what follows can seem a little unbalanced but here we go
If you have purchased something online from a business which has now just gone out of business, you are now known as a creditor.
As a creditor you will have to join a long line of creditors many like yourself who have purchased an item from the business and did not receive it before it went out of business and there could be hundreds if not thousands of people like this that are owed anything between say £10 all the way up to £1000’s.
Then there are the other creditors, like the landlord of any premises which the company occupied, utilities suppliers, and of course let’s not forget HMRC who will be circling for their pound flesh.
Who do you think will get paid out first when the company assets are stripped and sold off to pay the creditors?
The larger creditors with the larger resources I.e. lawyers, accountants and such like will always be paid first.
By the time the major creditors are paid off there is normally nothing left in the pot for the smaller creditors. Think of lions around the carcass of a zebra, by the time they are done there will be nothing but bones for the rest.
The probability of you getting your cash back or goods delivered are less than a snowman’s chance in hell.
I wrote earlier that the system is a little unbalanced, so here it is.
If you owe the company that is going bust money, in this example you owe a lender money, and that lender goes out of business you still owe the money. As I previously stated it is unbalanced but those are the insolvency laws in the UK, rightly or wrongly “Dem Da Rules”. If you borrow money, you still owe the money
What will happened when a lender goes to the wall is the loan book, i.e all the outstanding loans will be sold to a third party.
If you recall from scenario 1, when a company goes into administration creditors have to be paid and the money will come from selling off the company assets and when you think about it what assets could a lender have, chairs, desks, a laptop or two?, those won’t go to pay the administrators fee.
The real asset which a lender holds is their loan book. This will be sold off to another lender or agency and they will expect the loans to be paid, so now rather than paying Peter, you will now pay Paul.
Well, you are free to make that call, but by not honouring your debts you will damage your credit score.
Damaging your credit score you are yourself borrowing from your future self to be able to take out further financing.
Now you might think, “sod them, I will never take out another short-term loan”, but what about car loan, or a mortgage, credit card. How can another lender possibly consider you as an acceptable risk?
Destroying your credit score can take only a moment, repairing it will take a long time. So, before you start popping the champers when a lender goes under.
It might seem like the system is geared against the consumer and borrowers alike but that is the current system and consider that one day you may be one of the bigger creditors and then the insolvency laws will work in your favour.
Debt management agencies are regulated by The Financial Conduct Authority
Many people in the U.K struggle with debts and many do not know how to start to repay them speaking to a debt advisor is one of the best things you will do along with taking action yourself by speaking directly with your creditors.
https://www.nationaldebtline.org/ and https://www.moneyadviceservice.org.uk
You should always seek professional advice when handling debt problems. Cashute are not licensed debt advisers and any information contained in this article should not be taken as legal advice. It is your Responsibility to seek out correct legal advice