If you are struggling to keep up with monthly payments on your mortgage, credit card, loan or car finance scheme due to Covid-19, then a payment holiday can be just the thing to give you some vital breathing space. You won’t be alone – more than four million people have already deferred payments since the start of the pandemic.
But time is running out: the deadline for payment holidays is October 31st so you have to move fast if you want to apply. But what exactly is a payment holiday, how do you get one and is it the right thing for you?
What is a payment holiday?
During the coronavirus pandemic, banks and other lenders were told by the financial regulator (FCA) to offer three-month payment holidays to everyone who was struggling financially thanks to Covid-19. This meant that people who were unable to meet their monthly payments could have a break from those payments for three months to take the pressure off their finances.
Do I need to have had coronavirus to be eligible for a payment holiday?
No, you will just have to self-certify that your ability to make repayments has been affected by the pandemic, such as working hours being reduced or a fall in your monthly income if projects have been cancelled or postponed.
Will taking a payment holiday affect my credit score?
When payment holidays were first launched, the FCA said that there should be no negative impact on someone’s credit score if they took one out. However, while there isn’t a special ‘black mark’ left on credit scores, future lenders can easily see if someone has taken advantage of the payment holiday scheme as there will not be any payments on the account for those months. So lenders might look at your credit report and decide not to lend if they think you were struggling before.
It’s a payment holiday, not an interest holiday
While it might seem like a no-brainer to have a pause from making payments for three months, it could actually end up costing you more in the end. Interest will still be rolling up so the overall debt will actually increase over those three months. This means that when you start repaying again, your monthly repayments could be higher than before, or that you will take longer to clear the balance.
Are there alternative options to having a payment holiday?
Payment holidays are only for three months so, before you ask your lender for one, see if there is any way you can make savings in other parts of your spending and still keep up your repayments. This will put you in a much better position for the long term, rather than just having a three-month pause and then still having to find the money for repayments when the period ends. Talk to your lender about your situation as they might be able to come up with other options instead of a short-term payment holiday.
I understand the impact but it’s the right thing for me. How do I apply for a payment holiday?
Contact your lender directly – this means the company you took your mortgage, credit card, loan or car finance scheme with – and tell them you are experiencing payment difficulties due to coronavirus. You might be able to apply online but it’s worth talking directly on the phone if you can to find out what the best options are for your own circumstances. Either way, the process should be quick and relatively straightforward. Make sure you understand exactly what the impact will be on your overall debt and future repayments.
What happens if I miss the payment holidays deadline?
Banks will still be offering support but it might on a more case-by-case basis and could take other forms than just a straight payment holiday, such as extending the term of a loan or refinancing. Whatever you do, do not just stop your payments before you have had your payment holiday agreed with your lender. A failure to meet your payments will be counted as a missed payment and will impact your credit score.
Looking for a new credit card?
Great credit card offers are out there — you just need to know where to look! If you’re after the top offers on the market, a great place to start is our list of the top credit cards.
Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.