If the 2008 financial crisis taught us anything, it’s that your lender isn’t guaranteed to still be in business for the full term of your loan. While you won’t be able to take out a new loan with that lender, having a lender shut down doesn’t necessarily change the repayment process — though it can.
If my lender shuts down, do I still have to repay the loan?
Yes. When you borrow money, you sign a legal contract containing specific terms and conditions related to your payments, rates and more. The legal status of your contract doesn’t change when your lender shuts down.
In fact, you might not notice much of a difference in your repayment experience after a lender goes defunct. That’s because your debt is typically up for sale when a lender closes. Another company simply buys your loan and starts receiving your repayments. In some cases, your loan can fall under the control of the Federal Debt Insurance Corporation (FDIC).
Either way, your loan terms will likely carry over to a new company — with the same APR and repayment terms.
What happens if I stop making repayments?
Your new lender will inevitably notice, and the lapse can seriously damage your credit score. Depending on why your original lender shut down, it’s possible that your new one will be even better at keeping track of your repayments.
Payments that are more than 30 days late can show up as delinquencies on your credit report, sometimes resulting in a drop of up to 110 points in your score. Any defaults could follow you around for years to come, making it difficult to qualify for future loans, credit cards, mortgages and more.
List of recently out-of-business lenders
Stopped issuing personal loans after it couldn’t compete with larger companies.
LendingClub and OneMain financial offer personal loans with cosigners — Vouch’s biggest draw.
Shut down after pressure from regulators in Bulgaria, where it was based.
Banks like PNC Bank and Wells Fargo offer personal lines of credit.
Here’s what typically happens to your loan when a lender shuts down
The most immediate action is that your lender stops funding loans. This typically won’t affect you unless you own a line of credit you’d like to tap into or want to apply for a new loan.
After funding ceases, one of three things happen:
Your lender continues to collect repayments until every loan is paid off.
A servicer or another lender buys your lender’s portfolio.
The FDIC takes over your loan until it can sell your lender, typically to a bank.
At this point, you should receive notification from your lender or the new company you’ll be paying to. More than likely, your loan terms and conditions remain the same — unless your lender charged rates that are higher than your state’s legal limits, in which case your rates may come down.
If a court agrees that you were a victim of predatory lending by taking on the loan, you could receive a refund of any interest or fees you paid under the illegal conditions.
When a new company buys your loan, here’s a few ways to keep on top of what you owe:
Contact your old or new servicer. Reaching out to both your new and old servicer can help you better understand what to expect and how to prepare yourself. But even reaching out to one can give you an idea of what will happen with your loan.
Set up an online account. If your loan is sold to a new company, set up a new online account with that lender to easily access information about your account.
Confirm your repayment terms. Review your loan’s repayment terms to make sure you’re paying the correct amount each month. You might need to contact your new servicer or first set up a new online account.
Set up autopay. If you were enrolled in autopay before, you might have to set it up again.
File any paperwork. It’s possible for important documents to get lost in the shuffle, especially if they aren’t digital. Keep a record of old statements, promissory notes and any important documents to access should something go awry.
Case study: Andre gets a new servicer
Say a man named Andre was in the middle of paying back a $10,000 loan when his lender went out of business. He continued to pay off the loan as usual, since the lender was still collecting repayments.
One day, Andre received a letter in the mail saying that the loan would be transferred to another company in 15 days. The letter had the contact information and instructions for repayment.
Just to be safe, Andre called the new company to make sure the rates and terms would stay the same and ask about setting up autopay. A representative assured him his rates and terms would remain the same and walked him through setting up a new online account and connecting his bank.
Need of a loan? Check out our loan guides to find a reputable lender
Learning that your lender has closed its doors might rattle you, but it generally won’t affect your personal finances much. You’ll still have to repay your loan, typically with the same terms and conditions. But the details can vary by lender and situation, so reach out to your old and new servicer to find out specific next steps.
Anna Serio is a trusted lending expert and certified Commercial Loan Officer who's published more than 1,000 articles on Finder to help Americans strengthen their financial literacy. A former editor of a newspaper in Beirut, Anna writes about personal, student, business and car loans. Today, digital publications like Business Insider, CNBC and the Simple Dollar feature her professional commentary, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.
How likely would you be to recommend finder to a friend or colleague?
Very UnlikelyExtremely Likely
Thank you for your feedback.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions. While we are independent, the offers that appear on this site are from companies from which finder.com receives compensation. We may receive compensation from our partners for placement of their products or services. We may also receive compensation if you click on certain links posted on our site. While compensation arrangements may affect the order, position or placement of product information, it doesn't influence our assessment of those products. Please don't interpret the order in which products appear on our Site as any endorsement or recommendation from us. finder.com compares a wide range of products, providers and services but we don't provide information on all available products, providers or services. Please appreciate that there may be other options available to you than the products, providers or services covered by our service.