A Guide to the Credit Card and Personal Loan Repayment Holiday
Banks are helping those struggling to repay personal loans and credit cards, offering payment holidays of up to three months for people whose income has been affected by the lockdown, or COVID-19 in general.
Originally, according to the Financial Conduct Authority (FCA)*, these measures were initially put in place to:
- Set out the FCA’s expectations on firms to offer a temporary payment freeze on loans and credit cards where consumers face difficulties with their finances as a result of coronavirus, for up to three months
- Ensure that for customers who have been hit financially by the coronavirus and already have an arranged overdraft on their main personal current account, up to £500 will be charged at zero interest for up to three months
- Require firms to make sure that all overdraft customers are no worse off on price when compared to the prices they were charged before the recent overdraft changes came into force.
- Ensure consumers using any of these temporary measures should not have their credit rating affected because of this
People owing money on the following can also access the same payment holidays:
- Store cards
- Catalogue credit
- Guarantor loans
- Logbook loans
- Credit union loans
- Home-collected credit
- Community development finance institution (CDFI) loans
Credit payment holiday facts
- Initially, three-month payment holidays were available to customers whose finances had been affected
- The deadline for requesting a payment holiday was originally 9th of July, 2020
- Most lenders are not asking for proof that people’s finances have been affected by coronavirus
- Interest will still be charged during the payment holiday, which means those who take it will likely end up paying a little more overall
- Lenders need only give the payment holiday where it’s a suitable solution. If someone has debt issues, or it appears that their income won’t recover after the COVID-19 crisis is over, the lender can deny a payment holiday
The most recent extension
On Friday 19 June, the FCA announced proposals to extend credit card and loan payment holidays. If the proposals are approved, the following will apply:
- Current payment holidays can be extended for a further three, however, lenders can deny the extension if they believe it will lead to more financial difficulty
- The new deadline to apply is the 31st of October, 2020, giving those currently making payments longer to decide
- Partial payment holidays are an option, which can be worked out with your lender, which means less interest will accrue
There is an element of discretion left to lenders as, although the FCA has mandated that payment holidays must be offered, some are also waiving fees for missed payments, offering reduced monthly payments or emergency credit limit increases.
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