What is a Payment Holiday?

When you’ve experienced a financial setback, it can be hard to meet your normal payment deadlines, including mortgages, loans, rent and credit cards.

This is when you might need to take a payment holiday, which is a short break from making payments against the credit you owe. During this period, you will not be expected to make any payments to reduce your debt. However, it’s important to know that a payment holiday can extend the length of time that it takes to pay back the entire credit. You might also be liable for any additional interest that is accrued during the payment holiday.

Alternatively, you might be required to pay more each month after the payment holiday ends to complete repayment by the previously agreed date. If the amount of interest you owe also increases, this will be added onto your monthly repayments.

Finally, payment holidays must be agreed between you and the lender. There will be an application to complete, so you can’t just cancel your payments to take a holiday. If you do this, you may be liable to pay additional fees.

How can I apply for a payment holiday?

Applying for a payment holiday will greatly depend on the amount of credit you have as well as your lender. Some lenders will have an online form to fill in while others will ask that you contact them via telephone, in-person at a branch or in writing.

Applying online is often the best way as it is an automated process and the holiday can be authorised quickly, often taking effect before your next payment is due. Payment holidays can also be approved quickly if you apply via telephone or at a branch, though these can sometimes be less convenient.

Sending a request in writing will often take the longest time, so if this is the only way you can apply, you need to start the application as soon as possible.

When completing the application, you’ll be asked why you want a payment holiday. Note: you will need to have a legitimate reason to take a break from making your payments. Some acceptable reasons include unexpected costs such as household and car repairs.

During the Covid-19 crisis, payment holidays have been made more widely available as many people are facing significant financial challenges.

Which direct lenders allow payment holidays?

Most direct lenders will offer the availability of a payment holiday. Banks often offer payment holidays on mortgages, loans and credit cards. Other lenders, such as credit card companies, may also offer payment holidays to customers. Loans from a UK direct lender will also be eligible for a payment holiday given the current economic crisis of Covid-19

The availability of a payment holiday will be set out in the credit agreement documents that you would have signed when you applied. If you take out new credit, be sure to have a look at these terms as they can be useful to know upfront.

During the Covid-19 crisis, the UK government has spoken to most major direct lenders and requested that payment holidays be extended to more people. This is to help those who have been put under financial strain as a result of job losses, lower incomes or furlough.

How long does a payment holiday last?

The length of a payment holiday will depend on your lender and the terms and conditions of the credit product you took out. For most credit products, the payment holiday will last for one month. However, some lenders will agree to payment holidays of up to three months.

However, most lenders will not allow for payment holidays to be extended beyond three months. Plus, there are limits to the number of payment holidays you can take. Some lenders will limit payment holidays to just one per year or two in a set number of years. Therefore, if you’ve taken a payment holiday in the past 12 months, you might not be eligible for another.

How to save money whilst being furloughed

The coronavirus has led to some drastic changes in modern life, affecting everything from travel to the weekly shop. But perhaps one of the most severe effects has been on people’s finances. Many people now find themselves in much less fortunate circumstances and are struggling financially. But do not worry, there are plenty of ways to save money during these uncertain times.

One way companies are weathering the coronavirus storm is through the use of furloughing. This economic technique is being utilised by companies who no longer have work to give to their employees, but do not want to make their staff redundant. Rather than forcing their employees to take redundancy, these companies continue paying their employees through the help of a government coronavirus job retention scheme, helping them pay up to 80% of their employee’s wages. While this benefits employees, many of those who find themselves furloughed may not be paid their full wage, meaning they are forced to find alternate ways to save money.

Applying for a payment holiday

To help people survive financially during the current pandemic, many banks and loan companies are providing their customers the chance to take a payment holiday. This means that these organisations are temporarily allowing their customers to stop paying their loans, mortgages and rent, typically for 3 months. But how do you apply for these payment holidays?

For those with mortgages, the best method of obtaining a payment holiday is to apply for one online through their bank or mortgage provider’s website. However, there is a small waiting period in the application process as lots of people nationwide are applying for mortgage holidays. Latest figures from UK Finance show that 1.2 million customers have taken a payment holiday since the coronavirus crisis started, highlighting just how popular this concept is. It is worth noting that it is solely at the mortgage provider’s discretion if your application is approved and they are under no legal obligation to provide everyone with a mortgage holiday.

If you live in rented accommodation, the best way to obtain a rent break is to simply contact your landlord and see if they would be happy to freeze rental payments. However, not all landlords will be willing to allow this. If your landlord does refuse to temporarily pause rental payments, and you find yourself unable to pay rent, then do not worry as the government has currently restricted landlords’ abilities to evict tenants for up to 3 months in England and Wales and up to 6 months in Scotland.

Both credit cards and short term loans can also undergo a payment holiday, with the Financial Conduct Authority (FCA) telling lenders that they need to provide payment holidays to those affected by the coronavirus. Customers have until 14th July 2020 to apply for these 3-month payment holidays, and most lenders do not require you to provide proof that you are being negatively affected by the crisis. However, do note that interest will still be charged on the loans. As with mortgage holidays, the best way to apply for a payment holiday is by going online as phone lines are likely to be busy.

Different ways to save money

If you still find yourself struggling with money, there are still plenty of ways to save during the crisis. For instance, one of the best ways to save money is by switching supermarkets. Many discount supermarkets such as Aldi and Lidl offer the same quality goods for cheaper prices then their competitors, so it is worth shopping around for the best deal.

Another great way to save money while being furloughed is to simply go over your household finances. While this may seem like an obvious suggestion, it could lead to some serious savings. For instance, looking at your direct debits may reveal that you are paying for subscriptions you no longer need such as gym memberships, sports packages, or multiple video streaming services. It is also a good idea to take this time to look into what help the state can provide. This includes checking if you qualify for certain benefits such as Universal Credit and tax relief schemes.

Finally, consider reducing your salary sacrifice deductions, if this is possible. To ensure we can all live comfortably during our retirement, the government encourages us to pay into a pension pot. However, temporarily reducing or stopping these pension payments will increase the amount of pay you take home each month, providing you with more money during the current crisis. However, remember to resume these payments once you return to full-time work to ensure you are making the most of the various pension schemes available.