What are Payment Holidays and How does it Work?

There will come a time when you feel exhausted with your regular debt payments. When this happens, you can negotiate for a short-term payment holiday with your creditor. For instance, your creditor may allow payment holidays and breaks on your mortgage or loans.

Though your creditor may agree to a payment holiday, these missed payments are considered to be as arrears. This means interest and charge may be added.

How Payment Holiday Works?

Your creditor is not obliged to agree for any payment holiday. This means it’s not a guarantee that your creditor will agree to your request not unless under certain circumstances. 

Letters During Payment Holiday

In accordance with the set rules and guidelines under the Consumer Credit Act, lenders must send you a warning letter during your payment break after missing two payments, even if it was approved by your creditor. 

Payment Holidays and COVID-19

There is a new guideline in place to help people who had been affected by the COVID-19 pandemic.

The FCA or Financial Conduct Authority declared variety of changes that can impact consumer credit. Below are being in place for three months to help consumer cope up with the financial crisis.

  • Overdrafts amounting up to £500 free of interest charge
  • Payment holidays for store cards, credit cards, personal loans, conditional sale or hire purchase, catalogue debts, car finance and high costs credit
  • Payment holidays due to COVID-19 or coronavirus outbreak will not impact your credit file
  • Extension of moratorium period in Scotland for people with debts from 6 weeks to 6 months. This means creditors are prohibited to consider further action to compel debt payments. Also, should you need a moratorium, you have to get the aid of an approved money adviser.

Can I get a mortgage payment holiday?

Mortgage payments holidays are taken into account for individuals with financial difficulty. If you don’t have any arrears, you can apply for one without any proof that your finance has been affected by COVID-19.

Also, there are other means to cushion the impact or coronavirus on your finances. You can ask to lower or reduced your debt payments or request for payment breaks regardless of whether you were affected with COVID-19 or not.

Can I get a break from paying my rent?

For people renting in Scotland, the Scottish Government has extended your protection from eviction if you have arrears. If your landlord wants to evict you, they may need to allow six months notice before considering proceedings for eviction.

If you reside in England and Wales, the court has suspended all proceedings concerning repossession. However, rent obligations are still payable. Should you have difficulties meeting rent payment, you can ask for a payment break. This will depend on the discretion of your landlord or local authority if they’ll agree to it. For further information, you can check our guide about rent arrears.

How can I request for a payment holiday?

If you think you need to ask for a payment break, you have to present details that support your request. 

Usually, your landlord, bank or local authority would prefer to know your income and expenses, and any information that relates to your finances or budget. This will convey how much you can afford each month.

You have to indicate the reason why you’re asking for payment break and up to when you can afford to pay the original amount. This means you have to pay the amount agreed when you take out the loan or credit after the payment break. Your payment terms may be extended by adding extra months, or your original amount might increase.

Moreover, your creditor is not obliged to grant your request. They can disagree if they want to. When this happens to contact us so we can help you find means on how you can deal with your debt problems.

What happens after the payment break?

While you’re on a payment break, you must learn how to manage your financial situation and consider what will transpire at the end of payments break.

What happens after the payment break?

While you’re on a payment break, you must learn how to manage your financial situation and consider what will transpire at the end of the payment break. The following circumstances are likely to occur:

  • Increase in your mortgage payment due to missed payment and unpaid interest charges
  • Payment for your loan each month can possibly go up
  • Your credit card payment each month may be higher considering the unpaid interest

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