How unpaid debts are sold on and could end up costing you HUNDREDS of pounds more

MONEY you owe to a bank or on a credit card can be sold on to another company if you fall behind on repayments.

The new company will try and collect this unpaid debt and if you ignore it, you may end up paying back more than you borrowed.

Sorting out debt problems sooner rather than later can avoid extra costs and stressCredit: Getty – Contributor

Here we explain when your debts can be sold on, what it means for paying it back and how to avoid it costing you more.

If you are behind on any debt it’s better to seek help sooner rather than later, and you can find support that’s totally free from charities like Step Change, National Debtline and Citizens Advice.

Why is my unpaid debt sold on?

If you you don’t keep up with repayments on a loan or credit card (known as falling into arrears) the lender can end up selling on the debt to another company.

Debt can be sold on to a company known as a debt purchaser, or a debt collection agency.

A debt collection agency can also collect money on behalf of the original lender without it being sold on.

Debt is usually sold on when it has been outstanding for a long time and the bank or credit card company don’t want the hassle of trying to get it back.

But if your unpaid debt is sold on, you still owe the money to the new company.

Why do companies buy unpaid debt?

COMPANIES buy unpaid debts for a lot less than the amount owed – often just a fraction of the outstanding balance.

For each pound of debt sold on, these companies can pay as little as 10p for it.

The company buying the debt will make a profit by trying to recover the full amount.

For example, a company might buy a debt of £1,000 for £200.

If it manages to get someone to repay the full amount, the company will pocket £800.

The company can also still make a profit if less than the full amount is paid back.

For example, if an agreement is reached to repay just half the amount of £500, the company bought it for less and pockets the difference of £300.

The company can make no profit at all if the debt is never repaid.

Debt purchasers buy unpaid debts in bulk with a view that while not everyone will repay the debt, more people will pay back all or some and it will make a profit overall.

Lenders sell on the debts for less because it guarantees at least some of the money back and they don’t have to spend time or money pursuing repayment.

You won’t be told how much your debt is sold on for.

Can my debts be sold on?

Only certain types of debt can be sold on to another company.

Debts regulated by the consumer credit act can be sold on and this usually includes:

Credit cards
Hire purchase agreements
Payday loans
Personal loans
Store cards
Store finance
Buy now, pay later (BNPL)
Catalogues

Debts that can’t be sold on include council tax, utility bills and mortgages.

But you can still be chased for payment of these directly by the council, energy company or mortgage lender, or by a debt collector on their behalf and you should seek debt advice if you’re behind on any payments.

What happens if my debt is sold on?

You should be told if your debt is sold on by the company you originally borrowed money from.

So if you had a personal loan from a bank and it’s been sold on, the bank should tell you.

You should also get a letter from the company that buys your debt, which includes the name of the original lender and account number so you know which debt it is.

The new company could also start calling to ask for payment too.

Debt charity Step Change advises that if you’ve been contacted by a debt collector, been told that your debt might be sold on then you should seek debt advice.

You still owe the money and the original credit agreement you have remains the same.

Can my debt cost more after it’s sold on?

When your debt is sold on, the terms remain the same, it’s just who you owe it to that changes.

The new creditor can’t suddenly increase the amount of money you owe or charge you more interest out of the blue.

The agreement you had with the original creditor, like the bank or card company, stays as it is.

But if your original credit agreement says you can be charged for late or missed payments, the new creditor can continue to add on these costs, though they must still be fair.

As StepChange explains, it wouldn’t be fair to charge you £100 for a letter, even if this was included in your credit agreement, because this is a lot more than the actual cost of writing and posting a letter.

You can reach an agreement to reduce or stop any further interest and late payment charges (if they are part of your original credit agreement) so they don’t build up on top of your original debt.

A new creditor can take action to recover the debt, like going to court and getting bailiffs involved, and this could be something you have to pay for on top of the debt.

You should seek debt advice before it reaches this stage and you can work out a way to make affordable repayments or other debt plan to avoid it reaching court and bailiff action.

This is usually a last resort for the creditor if no agreement has been reached to repay the debt.

How to get debt help for free

THERE are lots of groups who can help you with your problem debts.

Citizens Advice – 0808 800 9060
StepChange – 0800 138 1111
National Debtline – 0808 808 4000
Debt Advice Foundation – 0800 043 4050

You can also find information about Debt Management Plans (DMP) and Individual Voluntary Arrangements (IVA) on the Money Advice Service website and on the Government’s Gov.uk site.

Speak to one of these organisations – don’t be tempted to use a claims management firm that will claim it can write-off lots of your debts in return for a large up-front fee.

How much more can my debt cost?

If a debt remains unpaid the creditor can take you to court and get a County Court Judgement (CCJ) ordering you to pay the money back.

If you ignore the CCJ or don’t pay back the amount the court has ordered, this can lead to a visit by bailiffs.

You have to cover the cost of bailiffs and this can add up to hundreds of pounds more on top of your debt, so it pays to sort out your debt problems before it reaches this stage.

Bailiffs follow a three stage process and can charge you a fixed fee at each stage, of £75, £235 and £110.

At the second stages, they can also charge a fee of 7.5% on any debt over £1,500, according to Citizens Advice.

On an unpaid debt of £5,000, if bailiffs end up reaching the last stage and taking your belongings and selling them, these costs could add up to £945.

And on a debt of £10,000, the extra cost could total £1,695.

What fees can bailiffs charge?

For the type of unpaid debt that’s sold on like credit card borrowing and personal loans, bailiffs can charge the following if you ignore a CCJ or don’t pay the amount ordered by the court.

Stage 1 – writing to you about your debt

Fixed fee: £75

Stage 2 – visiting your home

Fixed fee: £235
Extra fee: 7.5% on any debt over £1,500

Stage 3 – taking and selling your belongings

Fixed fee: £110
Extra fee: 7.5% on any debt over £1,500

On top of these fees, bailiffs can also bill you for expenses like storing your items after they are taken and adverts for selling your items.

Bailiffs and these additional charges can happen after ignoring debt over a long period of time, and it’s important to seek help to deal with debts before they reach this stage and end up costing you more.

Sara Williams of money blog Debt Camel said: “It isn’t a big problem if your debt is sold to a debt collector. Many debt collectors are easier to deal with than the original creditor!

“The best way to stop the case going to court, which can add on extra charges, is to offer a monthly payment.

“But don’t offer more than you can afford – talk to a good debt adviser such as National Debtline if you aren’t sure – you don’t want to offer one debt a lot then have a problem with another debt.

“And a debt adviser can talk through your options if you have no spare money at all to make payments.”