Payment holidays are one of the many schemes the government introduced to help those struggling financially throughout the last few months. However, these programs are probably better off being called ‘repayment deferrals’, as even though the repayments are paused, you’ll still have to pay it back when the holiday ends - with the interest which has been incurred.
If you have taken a payment holiday recently, you’re not alone. In April, one in nine mortgage holders in the UK delayed repayments to help them get by because of increased unemployment and wage reduction.
However, the payment holiday scheme – for many products – will be coming to an end on October 31st 2020. It’s important to prepare for this and total up how much you now owe. This way you know what financial position you are in and can seek the right help if needed.
After the extended end date, your lenders will be in contact to start reclaiming the ‘missed’ payments. If you have taken a mortgage holiday, it is likely your monthly payment will rise to take account of the missed payments and interest. Similarly, any other loan or credit card payments may increase as the monthly payment takes account of the extra borrowed money.
If you’re still not able to pay back the debt, you should discuss this with your creditors as often they will be able to extend the payment holiday. However, they will have the final decision and each case will be based on individual circumstances.
There are two ways you can start tackling your repayments (if your creditor agrees):
By extending the amount of time you have on your repayment plan you can cover the payments you’ve missed. However, by adding extra months to your plan you’re also adding extra months of interest. This could end up costing you more in the long run.
If you’re in a comfortable enough financial position, then it could be worth increasing the amount you pay every month. This could lower the amount of time that you’re on the plan and the total interest paid. Most banks and creditors will make sure you’re aware of the new payments and help you understand what your options are in case it doesn’t suit your circumstances.
If you resume payments at the end of your payment holiday, then your credit score shouldn’t be affected. However, if you have taken any payment holiday, and start to default on repayments after the break ends - without an agreement with your credit provider - this will begin to negatively impact your credit score.
Don’t panic. There are plenty of options if you feel you’re not ready to start making repayments. Having said that, this is something to take seriously.
You may need to get professional help with debt if your finances are getting on top of you. If you were already in arrears before you took the payment holiday, and you don’t have the money to start making repayments, then you should act quickly to obtain professional debt advice. Your credit score could only get worse once the holiday is over. Get in contact today and MoneyFixers’ expert advisors could help find the right solution for you.