Taking a payment holiday

As Covid-19 continues to cause financial distress for many households, you may be considering taking a payment holiday.

A full payment holiday is an agreement with a lender, giving you a break from making any repayments to loans, credit cards and other credit agreements.

On the other hand, a partial payment holiday is when your lender lets you make reduced payments for a period of time. But you still pay something.

These holidays can help if you’re finding it hard to make payments because of coronavirus. If you are in arrears that are unrelated to coronavirus you won’t be eligible for this type of break from payments

Payment holidays typically last 6 months. For high cost short term credit (like payday loans), payment holidays last one month.

During this time they won’t adversely affect your credit score, provided you’ve followed the lenders process for setting up a holiday. Despite this, a break from making payments will be recorded. Because of this you may find it hard to get loans from this lender in the future.

Furthermore, in most cases interest will still be charged. Consequently, you may end up paying back that originally agreed. Additionally, your repayments may increase after the holiday. Because of this, your debt ratio may worsen, making it harder to get a loan in the future.

To avoid these extra costs, you should try to pay what you can, rather than paying nothing.

If you are still in financial difficulty because of Covid-19 after a payment holiday ends, the negative consequences for your credit profile and credit score are greater. Read more.

Applying for a payment holiday

You need to apply for a payment holiday by 31 March 2021. All payment holidays end on 31 July 2021.

You can apply for a payment holiday for loans, credit cards, catalogues, store cards, car loans and higher-cost credit including rent-to-own, buy now pay later and pawnbroking agreements.

If you are eligible, lenders can only agree a payment holiday of up to a maximum of 3 months at a time. They can also only agree to give you payment holidays of 6 months in total.

A lender may decide that a payment holiday isn’t in your best interest. As a result they should instead offer tailored support for your individual circumstances. This might be the case if you were already in arrears before Coronavirus or are in a Debt Management Plan. In such cases you may wish to seek money advice.

With buy-now pay-later or pawnbroking agreements where you don’t currently have to make payments, your lender can extend the time before you start making payments to get back on your feet.

Next, we’ll talk about what to do at the end of a payment holiday and how this may affect your credit file.

About Adrian Davies

With a background in money advice, Adrian's been campaigning for fairer finance for 25 years.

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