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.