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What is a payment holiday?
Also referred to as a ?payment deferral? in the FCA's recently published guidance, it's an arrangement where a lender allows a customer to make no repayments under a regulated credit agreement for a period of up to three months, without being considered as being in arrears.
Will I be eligible for a payment holiday?
Customers who have experienced, or are about to experience, a short-term financial impact either directly or indirectly as a result of coronavirus can request a payment holiday.
Where your lender does not believe that a three month payment holiday would be in your best interests, they will consider whether a lesser term might be more appropriate, or whether any other forbearance options would be more suitable for you, given your overall financial circumstances.
How long do I have to apply?
If you need a payment holiday, the support that is currently available means you can apply to your lender up until 14 July. Your payment holiday will last for the agreed period of time. So, if a three-month payment holiday is agreed from 1 May, you would not be expected to make the May, June or July monthly repayments when they are due.
Will I still get charged interest if I take a payment holiday?
Yes, this will normally be the case. Your lender will advise you of their policy.
Because interest will normally continue to be charged and the amount you owe will not reduce during the payment holiday period, you will need to consider whether it is the right thing for you, especially if you are taking payment holidays on other products. You should consider your options carefully and, if you can afford to continue making your payments, you should do so in order to keep down your overall cost of borrowing.
Are all personal loan providers offering this?
Yes. The FCA's initial guidance however refers to support to be provided on a range of personal loans which are regulated credit agreements, that are either unsecured or secured (other than on land), including unsecured personal loans, guarantor loans, logbook loans and home credit.
The support to be made available on other types of consumer loans (such as motor finance, Buy Now Pay Later and payday loans) is currently being finalised by the FCA (as at 21 April).
How can I get information and how do I apply for the payment holiday?
Your lender will advise you how you can request a payment holiday. You should look online in the first instance, as telephone lines are extremely busy at this time.
It is really important that you do not cancel direct debits or standing orders before you have been advised by your lender that a payment holiday has been granted, and they will advise you whether this is necessary.
How long will it take for my provider to process my application?
Lenders are doing their best to support their customers during these difficult times. However, the spread of coronavirus is also having an impact on their own staff and requests for payment holidays will be dealt with as quickly as possible. We would encourage you to apply online where possible.
If you apply for a payment holiday and then miss a payment because it has not been set up in time, your lender may be able to treat your missed payment as part of a payment holiday. You should check with your lender whether they are able to do this
Will taking a payment holiday have an impact on my credit report?
During the payment holiday period, the monthly payments you do not make will not be reported to credit reference agencies as missed payments. Other account details, such as your outstanding balance, will continue to be reported in the usual way.
What happens at the end of the payment holiday?
Your lender will explain the implications of taking out the payment holiday to you, including the consequences of interest accrued and the potential impact on future payments. They will explain what will happen at the end of the payment holiday and when the payments to your loan are to start again.
If you do not think you can afford to make a payment or will have difficulty making the payment at the end of the payment holiday, you must get in contact with your lender as soon as possible and before the payment is due. Lenders will discuss your circumstances with you and will have a range of options available to help you.
Where can I get more general free debt advice?
The Money Advice Service provides information on free and impartial debt advice. This includes organisations that can provide online debt advice support as telephone and face to face debt advice services will be very busy at the present time.
https://www.moneyadviceservice.org.uk/en/tools/debt-advice-locator
Does a payment holiday mean that my terms and conditions are to change?
Lenders will implement a payment holiday in a number of different ways. Your lender will let you know if they need to change your terms and conditions.
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