Loan Default in Australia: Meaning, Consequences & Best Tips

Missing a loan repayment can feel overwhelming. Understanding what loan default means in Australia — and what typically happens before, during and after a default — can help you make more informed financial decisions and take early action where possible.

In Australia, defaulting on a loan generally does not happen immediately after a missed payment. Credit providers must follow specific legal steps, provide notices, and give borrowers time to respond before a default can be recorded. Knowing how this process works can support better financial awareness and planning.

In this guide, we explain:

• What a loan default is and when it may be recorded
• What can happen when different types of loans default
• How default can affect your credit report and future borrowing
• Common legal and financial consequences
• General steps that may help reduce the risk of default

The aim is to support financial literacy so you can better understand your options and responsibilities as a borrower.

What is a loan default?

A loan default occurs when a borrower does not meet the repayment obligations set out in their loan contract, and the credit provider determines the account is unlikely to return to its original terms without further action.

In simple terms, default means repayments have not been made for an extended period and no alternative arrangement has been agreed.

Default vs late payment

Understanding the difference is important:

Late payment:

• A repayment is missed or paid late, typically less than 60 days overdue.

Default:

• The account becomes significantly overdue and meets legal requirements to be formally recorded as a default.

A single missed payment does not automatically result in a default.

When does default officially occur in Australia?

While timeframes vary by lender and product, a credit provider can generally only list a default on your credit report if all of the following apply:

• The repayment is at least 60 days overdue
• The overdue amount is $150 or more
• A written notice has been sent to your last known address
• A second written notice is sent at least 30 days later, warning of possible default listing
• At least 14 days have passed since the second notice
• The default is listed within three months of the second notice

Key point: You must be informed before a default is listed, and you have time to respond.

Helpful background reading includes understanding what a credit report is and how a credit score works.

Secured vs unsecured debt defaults

The impact of default depends on whether the loan is secured or unsecured.

Secured loan defaults

A secured loan is linked to an asset that acts as security for the debt.

Common examples include:

• Home loans secured by property
• Car loans secured by a vehicle
• Home equity loans

What may happen:

• The lender issues formal default notices
• If unresolved, recovery action may begin
• The secured asset may be repossessed or sold
• Recovery and legal costs may be added
• If the sale does not cover the full balance, a remaining amount may still be owed

Processes such as foreclosure generally require court involvement, while repossession rules can vary by state.

Unsecured loan defaults

Unsecured loans are not backed by an asset.

Examples include:

• Personal loans
• Credit cards
• Medical expenses
• Some private student loans

What may happen:

• The account may be closed
• The debt may be transferred or sold to a collection agency
• Collection activity may commence
• Legal action may be considered in some cases

While there is no asset attached, the financial and credit impacts can still be significant.

What happens when you default on a loan?

The experience can differ depending on the type of loan.

Mortgage default

• Default may begin after repayments remain unpaid for an extended period
• The lender may require the full balance to be repaid
• Legal proceedings may follow
• The property may be sold
• If the sale does not cover the debt, a remaining balance may apply

Car loan default

• Default may be considered after prolonged non-payment
• The vehicle may be repossessed
• Recovery costs may be added
• A remaining balance may still be owed after sale

Personal loan default

• Often unsecured
• The debt may be referred to collections
• Legal action may be considered

Credit card default

• The account may be closed after extended non-payment
• The balance may be transferred to a collector
• Legal recovery may be pursued in some cases

Student loan default

HECS-HELP / HELP loans

• Repayments are income-based through the tax system
• There is generally no traditional default while residing in Australia
• Overseas borrowers must lodge and repay to avoid recovery action

Private student loans

• Treated similarly to unsecured personal loans
• Extended non-payment may lead to collections or legal action

Consequences of defaulting on a loan

Credit score impact

A default can have a significant effect on your credit report.

Immediate effects may include:

• A noticeable reduction in your credit score
• Compounded impact when combined with late payment history

Longer-term effects:

• Defaults remain on your credit report for five years
• They remain visible even if paid, marked as “paid” or “satisfied”
• Future credit applications may be more difficult

Legal considerations

• Credit providers or collectors may pursue legal action
• Court judgments can allow enforcement actions such as wage deductions or property claims
• Legal and court costs may be added to the outstanding balance

Collection activity

• You may receive calls, letters or emails
• Debts may be managed by third-party collectors

Your rights include protections under Australian Consumer Law and ASIC guidelines, such as limits on contact, no harassment, and the ability to request written communication or dispute a debt.

Employment and housing considerations

• Some employers and landlords may review credit reports
• Defaults may affect applications for certain roles or rental properties
• Additional conditions, such as higher bonds, may apply

Other considerations

• Some insurers use credit-related risk assessments
• Banking options may be limited
• In some situations, forgiven debt may have tax implications

How to reduce the risk of defaulting on a loan

The most effective step is acting early.

If repayments become difficult:

• Contact your lender as soon as possible
• Ask about hardship assistance or payment variations

General financial habits that may help:

• Review your budget and spending
• Prioritise essential expenses and repayments
• Track income and expenses
• Use direct debit or scheduled payments after payday
• Maintain a buffer in your account
• Use reminders to avoid missed payments

When prioritising repayments, secured and higher-interest debts are often addressed first, followed by essential living expenses.

Free support is available through services such as the National Debt Helpline and Financial Counselling Australia.

What to do if you’ve already defaulted

If a default has occurred:

• Confirm the default is accurate
• Contact the creditor or collector
• Discuss repayment or hardship options
• Keep written records of all communication
• Check your credit report for errors

While paying a default does not remove it early, it may be viewed more favourably by future credit providers.

Credit24: Responsible lending and customer support

At Credit24, responsible lending is a core part of how we operate.

Our approach includes:

• Affordability assessments
• Clear repayment schedules
• Transparent terms and costs

Support options may include:

• Early communication
• Hardship assistance where applicable
• Australian-based customer support

Tools available to customers may include:

• Repayment reminders
• Flexible payment dates
• Direct debit and OSKO payment options
• Affordability calculators to support informed decisions

Apply now

FAQ

What is a default on a loan?

A loan default occurs when repayments are significantly overdue and legal notice requirements are met. In Australia, defaults remain on a credit report for five years.

What happens when you default on a loan?

Your credit score may be affected, collection activity may begin, and legal action may be considered. Secured loans may involve asset recovery.

How long does a default stay on your credit file?

Five years from the listing date, unless it was recorded incorrectly.

Can you get a loan with a default?

It may be possible, depending on factors such as the age of the default and your current financial situation.

What’s the difference between late payment and default?

Late payments appear on repayment history for up to two years. Defaults are separate, more serious records lasting five years.

Should you pay off a default?

Paying a default may help prevent further action and may be viewed more positively by lenders, even though the listing remains.

Disclaimer

IPF Digital Australia Pty Ltd, trading as Credit24, ABN 59 130 894 405. Australian Credit Licence 422839.

The information in this article is general in nature and does not consider your objectives, financial situation, or needs. Lending criteria, fees, and charges apply. For product details, eligibility requirements, and full terms and conditions, visit www.credit24.com.au.