What Happens if You Don’t Reach the End of Your Loan Term?

Before you borrow any money, it is important to consider the impact on loved ones that you’ll leave behind. We all cross our fingers and hope to live long enough to be wealthy and financially successful, but many people die in debt every year.

What Happens to a Loan When You Die?

When you die, the executor of your will must contact your creditors, including your loan provider. Your loan should be repaid from your estate. If your estate doesn't cover the loan, it will be written off.

If you die with outstanding debt, your loans become liabilities. Your estate will be used to clear any debts. Lenders usually agree to write off debts your estate can’t afford. Your executor must manage the debt repayment.

Fortunately, in the UK, your loved ones won’t inherit your debts. But, this doesn’t mean that they won’t feel the impact of your borrowing.

Read on to learn more about what happens to your loans if you die.

Looking for other information on Loans? This guide has info on 'What happens to my loan if I die?'. We have also writen extensively about:

• - Dangers of fast loans
• - How do quick loans works?
• - What is a logbook loan?
• - Are logbook loans safe?

We update all our guides regularly. If you are researching loans and we haven't got an exact guide that helps you, keep coming back as we update daily.

Personal Loan: What Happens to Debts After Death?

According to the Financial Conduct Authority’s Financial Lives Study in 2017, there were 39.6 million people in the UK with debt. Considering the adult population at the time was around 51 million people, that shows that over 75% of adults are living with debt. And so, it is likely that many people will die with outstanding debts to pay. So no doubt you want to know more about what happens to that debt when you pass away.

Your estate is what you leave behind when you’ve passed away. It’s a blanket term for your money, your possessions and any property you own. When you die, your will dictates what happens to your estate. You’ll decide who receives your possessions and who gets the money that you’ve saved.

Personal Loan: If You Are in Debt When You Die

If you’re in debt when you die, your estate must take this on. Clearing debt becomes your estate’s top priority, so those that you love will only get a share of anything left at the end. In situations where your estate doesn’t cover your debt, secured loans are usually cleared first.

Unsecured debts are lower priorities, with lenders usually wiping these debts if the money simply isn’t there to cover them.

Your executor will be responsible for managing your estate. They’ll have to spend time dealing with your debts and making sure that everyone is paid, so make sure you’ve made them aware of your personal situation in advance and they understand what they’ll need to do so that they aren’t suddenly saddled with a lot of stress when it comes to sorting out your finances once you’re gone.

Personal Loan: Do Any Debts Pass to Other People?

If you die, someone, you live with may face some money problems. These aren’t debts that you pass on, but joint responsibilities that someone else now needs to deal with. Someone living with you becomes solely responsible for any outstanding household bills, or any financial product that they were jointly responsible for. If your loans were taken out in both names, they’ll now take sole responsibility.

In some cases, a jointly owned house must be sold to repay any debts. Find out if you own the house as ‘joint tenants’ or ‘tenants in common. If you’re tenants in common, you each own a share of the property and yours will be passed to your creditors. If that happens, the remaining homeowner is likely to be forced out.

Personal Loan: Are Outstanding Debts Top Priority?

Outstanding debts are the biggest priority for your estate when you die. If you’ve planned to pass your money on to your children, they could be left with absolutely nothing. If they’re living in your house, they may be kicked out as the property is repossessed. Only once all of your debts have been repaid will any remaining money or assets be passed on to loved ones left behind.

Personal Loan: What Happens to Logbook Loans?

Secured debts have higher repayment priority than unsecured debts when you die. Whilst this means that your house could be repossessed, it may also have an impact on your car.

Your vehicle becomes a part of your estate. It’s one of your assets. It isn’t treated as an individual item and passed straight to your logbook loan provider, but will be absorbed into your total estate value. All creditors, your logbook loan provider included, will then get their money in priority order.

Personal Loan: Protecting Loved Ones Even When You’re in Debt

If you’re in debt, it can be difficult to realise that your loved ones will lose out if you die. You might want a way to protect the people you care about. Your options here are limited, but it’s not completely impossible.

Some life insurance policies payout to one specific person. In these cases, the money that’s paid will not become part of your estate. Having the right kind of life insurance policy could mean that you’ve got money to pass on to your children, or could leave your spouse with enough money to stay in the house you shared together.

Not all life insurance policies will payout to a named beneficiary. In many cases, your life insurance payout will become part of your estate. Check the terms of your life insurance policy. Consider a different policy if yours doesn’t fully meet your needs.

Personal Loan: Dying With Debt and No Will

Whilst it’s a very good idea to have a will, particularly if you’re married and have dependents, not everyone has one when they die. If you don’t have a will, there’s very little impact on the way your debts are handled when you die.

With or without a will, nobody will benefit from your estate until all your debts are paid off. In either case, your debts remain the highest priority. Secured debts are still paid first, with unsecured debts waiting further down the line in case you have enough money to repay them.

Personal Loan: Dying With Debt and No Assets

Many people that die in debt don’t have any notable assets. These are people that haven’t saved money, bought a house or kept any significant belongings. If you die without assets, property or money then your debts will usually be cleared.

Debts don’t pass on to those you leave behind, though they may have to deal with admin and explain the situation to creditors. Not all creditors will take the news easily. In some cases, those managing your estate (or lack of it) will have a lot to deal with. Most creditors are sympathetic and accept the risk of a debtor dying, though some may work to chase the debt for a while.

Anyone can make sure that they have some assets to help to cover their debts. Life insurance policies don’t need to cost a lot but could help if you’re in debt when you die. With a life insurance policy, you can ensure that at least some of your debts can be paid.

Personal Loan: What Happens to Joint Debts?

Joint debts become the responsibility of the survivor. Whilst debts in one name will be written off if the estate doesn’t cover them, any debts or commitments shared between two people will be passed to the one that’s still alive.

In the unfortunate event that you and your spouse have joint debts and die at the same time, your debts will be considered in the management of your estate. If your partner has assets and you don’t, your debts will be cleared using your partner’s assets.

In this way, any joint debt has a big impact on your partner’s estate. Managing your debt is worrying in life, but can be even more upsetting when you think about the impact of your debt on other people.

Your debts can have a long-lasting effect on those you leave behind, so it’s especially important to make sure that you’ve got a plan for your money.

How Can Money Savings Advice Help You With Getting a Loan?

Here at Money Savings Advice, we have partnered with some of the UK’s leading loan broker companies. They have already helped thousands of people get the best loan that suits their needs, and they can do the same for you.

Choosing an independent loan broker means they won’t proceed with an application unless they are sure it is in your best interests. They are also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these loan brokers who can help you get a loan, then click on the below and answer the very simple questions.