What Is A Payment Holiday And Should You Take One?

Payment holidays – or freezes – are being talked about a lot at the moment. They’re one of the key measures the FCA (Financial Conduct Authority), who regulate the finance industry in the UK, have asked companies to introduce to help people while we all find our way through the Coronavirus, and try to manage as best we can. But what are they? Who are they for? And should you be thinking about getting one?

Let’s find out.

What is a payment holiday?

Payment holidays are a short break – up to three months at a time – from making payments on loans, credit cards, store cards, catalogue accounts, rent to own and buy now pay later agreements, motor finance and high-cost short term credit. You may also be able to take a payment holiday from mortgage payments if you’re a homeowner.

Who are payment holidays for?

They’re designed for people who are earning less, if anything, because of Coronavirus, and are struggling to keep up with their payments. But – and this is important – payment holidays are designed for people who know that once they’re able to go back to work and start earning their full wages or salary again, they’ll be able to make their payments again as normal. They’re not intended as a solution for long-term financial difficulty.

How long does a payment holiday last?

Payment holidays last for three months at a time. If, once your three month payment holiday is up, you need to extend it, then you may be able to do this, as long as the total time you’ve taken a payment holiday for is less than six months. If you’ve already had six months’ worth of payment holidays with each of your lenders, then you won’t be able to take any more.

The rules are slightly different for high-cost short term credit, and the length of payment holiday available for this type of credit is one month. This is because high-cost short term loans usually have a much shorter term than other types of credit, lasting for weeks or months, rather than years.

How can I get a payment holiday?

You’ll need to get in touch with your lenders to arrange a payment holiday. Bear in mind that many companies are managing with smaller teams of staff at the moment, which is making their phone lines busier than usual. So, you may have a wait to get through to someone, or you might prefer to get in touch by email instead. If you do drop them an email, make sure you do this as far in advance of when your payments need to be made as you can, as this will give companies as much time as possible to make an arrangement with you.

Will I still be charged interest if I take a payment holiday?

Yes. When you take a payment holiday, the company you’ve borrowed from can still charge you a reasonable rate of interest. So, you could end up paying back more overall. Before you get a payment holiday, make sure you find out how much extra it will cost, and when you’ll have to pay it, before you go ahead.

Do payment holidays affect my credit score?

As long as you arrange a payment holiday with your account providers, then it won’t have a negative effect on your credit score. But, it’s important that you do arrange it with your account providers, don’t assume that you can have one and stop paying. Companies aren’t arranging payment holidays for all their customers automatically and also won’t assume that if they don’t get a payment from you, it’s because you need a payment holiday. If you just stop paying, then it could still go down as a missed payment, which may mean being charged late fees, and your credit score could be affected.

Should I take a payment holiday?

Only you can decide if a payment holiday is right for you. But, remember, they’re designed for people who are having temporary money issues because of Coronavirus. They aren’t necessarily a good option for people who were struggling before Coronavirus, and the current situation has made things worse. If you are in longer-term difficulty, then speak to your lenders about it – payment holidays aren’t the only help on offer.

If you can still afford to make your payments, then you probably shouldn’t take a payment holiday either. This is because the additional interest you can be charged could make your borrowing more expensive. Knowing you can take a payment holiday if you need to is reassuring, but still best kept for an emergency.

I’ve had a payment holiday before, can I get another one?

If you’ve already taken a payment holiday during the pandemic, then whether you’re able to take another depends how long your previous payment holiday(s) lasted. Under the FCA guidance, individuals can take payment holidays from most types of credit for up to six months in total. But, these six months doesn’t need to be consecutive.

This means that, for example, you could have taken a payment holiday of two months last spring when the initiative was introduced, then another month in November when the “circuit-breaker” lockdown happened, and would still be able to take another three months’ worth of payment holidays now, if you needed them.

But, if you’ve already had six months’ worth of payment holidays, you won’t be able to take any more. If you still need help with your finances and aren’t eligible for any further payment holidays, then speak to your lenders – there is other help available!

Can my lender turn me down for a payment holiday?

A lender might decide, having spoken to you and assessed your situation, that a payment holiday is obviously not in your best interests. This could be because it’s clear to them that your situation won’t be helped by taking a payment holiday, or there could be other reasons that they will explain to you. If a lender decides not to approve your request for a payment holiday, then they should be able to offer other types of help that may be more suitable for you.

Need help with other bills?

Credit cards and loans aren’t the only bills you might be struggling with if you’ve been affected by Coronavirus. If you’re finding it harder to afford other bills that you need to keep on top of to keep a roof over your head, like rent, utilities bills or council tax, then get in touch with your providers to let them know. The government is encouraging landlords, utilities companies and others to be flexible during this difficult time, but you will need to get in touch with them to find out more about – and access – the help they can give you.