As of April 14th, your credit provider must offer the opportunity to freeze your repayments for at least three months (a payment holiday). This extension will not affect your credit score.
The relief is focused on supporting people with credit cards, loans and overdrafts, and suffering difficulty as a result of the Covid-19 pandemic. Christopher Woolard, Interim Chief Executive at the Financial Conduct Authority (FCA), said it was “designed to provide people affected with short-term financial support through what could be a very difficult time.”
Your credit provider will be providing online applications for you to apply the payment freeze, as a solution to help with the high volume of calls coming through. Some credit providers, such as Barclaycard and Halifax, have already rolled out this solution, so do check.
The basics are outlined below, along with a few things to be mindful of.
Restarting payments after the holiday
You will need to be mindful that after the repayment holiday, those frozen payments still must be repaid. You will need to discuss with your bank to come to an arrangement about how you will repay going forward.
Be aware that during the payment holiday, your balance is still accruing interest. In other words, the interest charge applicable to your debt is still being calculated and added whilst you are not paying. Be mindful that the total interest you will repay may be higher. In comparison, to if you did not freeze your payments, therefore, your total repayments will be higher.
You must meet their criteria
Each lender will have their own criteria for you to meet to be granted a payment holiday. Criteria will include your income being affected by coronavirus – if you have lost your job, for example. Check to ensure you are eligible for the holiday and, if you are not, check back regularly as things are continuously changing.
Do not cancel direct debits
You must contact your credit provider to arrange the payment holiday, instead of simply cancelling your payments. The usual rules apply: if you break the agreed credit terms for your debt, you are in breach and will suffer consequences as such. You risk damage to your credit score, which will affect credit terms in the future.
Only use if really necessary
If you can manage to continue paying your debt, it is advised to do so and save the option to pause repayments for when you really need it. Continuing to keep up with your payments and not taking a holiday results in you paying back less interest.
No affect to your credit score
The great news about this option is the lack of effect it has on your credit score. Usually, a payment holiday arranged with your lender is shown on your credit profile, thus impacting your score. But special measures in light of the coronavirus pandemic mean that payment holidays taken at this time do not have an effect.
If you are feeling financial overwhelm, check out this article that offers a solution to tackling your financial pressures.
Feel free to share this article if you think others will find it useful!