Why are people getting loans?
The most common reason Americans take out a personal loan is for debt consolidation (38%) purposes. This is followed by home improvements (35%) and medical expenses and utilities/bills (25%).
If the collapse of Silicon Valley Bank 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.
The same goes for when another company buys out or merges with your lender. You likely won’t be able to take out another loan immediately. And even if the new company offers loans, there will likely be different rates, terms or eligibility requirements.
You still have to repay your loan even if your lender shuts down. 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.
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.
Lender | When it shut down | What happened | Alternatives |
---|---|---|---|
Silicon Valley Bank (SVB) | 2023 | Didn’t have enough liquid funds to cover deposit requests. The FDIC took over SVB and seized its assets in March 2023. | Lendio’s tech-friendly business loan marketplace can help you find the right fintech or traditional business lender within minutes. |
Signature Bank | 2023 | Didn’t have enough liquid funds to cover deposit requests. The FDIC took over FDIC and Signature Bank. | SmartBiz is a business loan market place and SBA loan packaging service that can help small businesses find the right bank loan quickly. |
LendUp | 2022 | The CFPB ordered it to cease operations after several lawsuits over misleading marketing, violating military lending laws and violating consent orders from the CFPB. | MoneyLion Instacash offers quick cash advances without high rates of an installment loan. Learn about more Lendup alternatives. |
Sprout Mortgage | 2022 | Struggled to sell loans to investors and issue loans after the federal reserve raised interest rates. | Veterans United specializes in serving the military community, offering a wide range of mortgages across all 50 states. |
First Guaranty Mortgage | 2022 | Filed for Chapter 11 due to a weak mortgage and housing market — a reaction to the Federal Reserve interest rate increases. | First Horizon offers mortgages to residents of 12 states with no prepayment fee. |
Float | 2017 | Couldn’t raise enough funds to continue operating. | Brigit offers automatic overdraft protection for up to $250 on any bank account, for a monthly fee. Or, open up an account with Chime for no-fee overdraft up to $200 through its SpotMe service. |
Vouch | 2016 | Wasn’t profitable enough to stay in business. | Upstart specializes in personal loans for people who are just starting out their careers. |
Finder data suggests that men aged 25-34 are most likely to be researching this topic.
Response | Male (%) | Female (%) |
---|---|---|
65+ | 2.94% | 2.08% |
55-64 | 5.30% | 5.01% |
45-54 | 9.38% | 8.45% |
35-44 | 14.47% | 11.03% |
25-34 | 15.83% | 9.96% |
18-24 | 9.60% | 5.95% |
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:
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.
Any sudden change to the economy can cause a lender to shut down — such as rapidly rising interest rates. However, the most common reason for closures depends on the type of lender:
The Federal Deposit Insurance Incorporation, or FDIC, publishes a searchable list of failed banks, which it updates regularly.
When a new company buys your loan, here’s a few ways to keep on top of what you owe:
The most common reason Americans take out a personal loan is for debt consolidation (38%) purposes. This is followed by home improvements (35%) and medical expenses and utilities/bills (25%).
If your lender is bought out by or merges with another provider, it will send you detailed instructions of what to expect in advance. Acquisitions and mergers are common in the finance space and typically take at least a year.
You’ll still have the same rates and terms that you agreed to in the loan contract. But how you make payments may change. For example, when American Express bought out online business lender Kabbage, customers were required to make payments through Kabbage’s servicer, KServicing.
However, new loans may not be immediately available. And when they become available, you likely won’t see the same rates, terms and requirements. For example, when SunTrust and BB&T merged to form Truist Bank in 2019, it eventually offered a new product different from what was previously available through SunTrust or BB&T.
Sometimes banks and other financial institutions stop offering loans, even though they still remain open. In most cases, you’ll continue to make payments as usual, though you won’t be able to apply for another loan in the future. For example, Marcus by Goldman Sachs customers will continue to pay back loans through Marcus, but they won’t be eligible for another loan.
In some cases, a bank will sell its loans to another lender. That’s what happened when HSBC decided to move out of the consumer financing space, selling its consumer and business loans to Citizens Bank and Cathay Bank in 2021.
Like with mergers and acquisitions, this is typically a drawn-out process and you should receive several notices from both your former and current lender about what steps to take, if any.
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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.
Learn more about lenders that are still up and running in our comprehensive guide to personal loans.
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What if my current lender goes out of business and another lender in another state has taken over my payday loan? Can the new company refuse to honor the current agreement and force me to pay the loan off in full or make me switch to an installment loan that makes me pay more interest over time?
Hi Teddi,
Thanks for your inquiry.
Generally, if your lender shuts down, 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.
I hope this helps.
Kind regards,
Bella
Loan company went under and no notice or info of another company taking over loan. Received no notice or what I needed to do or who to contact
Hi Melissa,
Thank you for reaching out to Finder.
Generally since you still have a loan out, you may want to check your credit report to see who is still reporting the loan that you took out. There should be contact details available there for you to reach as well. Hope this helps!
Cheers,
Reggie