If your income has been affected by coronavirus (Covid-19) and you’re struggling to keep up with your mortgage, credit card, car finance or loans repayments, you can apply for a payment holiday of up to three months You can also get a £500 interest-free overdraft from your bank.
Need to know
Help with your mortgage
- You can apply for a mortgage payment holiday of up to three months, where you take a temporary break from paying your mortgage.
- You must agree this in advance with your mortgage provider. You can’t just stop paying. This would count as a late payment and affect your credit rating (making it hard to borrow money in the future).
- It’s not free money. The payments you miss (plus interest) are added to the amount outstanding on your mortgage. When the ‘holiday’ is over your monthly payments will go up to make up for the missed payments.
- Some mortgage providers are offering other help such as allowing you to switch to a cheaper rate or a temporary interest-only mortgage, or extending your mortgage term.
Credit card and loan repayments
- If you have a personal loan, credit card, store card or catalogue credit, you can also ask for a freeze on repayments of up to three months.
- You must agree the payment freeze in advance with your lender. You can’t just stop paying or this could have an impact on your credit rating.
- The payments you miss (plus interest) are added to the amount you owe. When the holiday is over either your monthly payments will go up or the term of your loan will be extended.
- Some lenders are offering other help such as waiving fees for missed payments, offering to reduce your monthly payments or allowing you to increase your credit limit, but this will depend on your circumstances.
- If you have a payday loan you can ask for a one-month freeze on repayments.
- As long as you meet the repayments after the deferral, this will not add to the overall cost of the loan
- You’ll be able to pay back the missed payment in a way that is affordable for you, either as a single payment at the end of the loan or in further instalments.
- If you have a car finance or leasing agreement or car loan you can ask for a freeze of up to three months on your payments.
- You must agree this with your finance provider in advance and shouldn’t just stop making payments as this could affect your credit rating
- Your finance company should not try to alter your contract in a way that is unfair, end your agreement or repossess the vehicle.
- You can ask your bank for a three-month interest-free overdraft up to £500 on your main current account.
- If you don’t have an overdraft, or your current overdraft is less than £500, you can ask for a new or an increased overdraft. This will be subject to a credit check.
- If your overdraft is over £500, only the first £500 will be interest free.
- This doesn’t apply to basic bank accounts (which don’t have an overdraft facility).
Useful to know
- Worried about your credit rating – Your credit score won’t be affected during the payment freeze, as long as you get it agreed in advance. If you asked for a payment freeze and missed a payment while you were waiting for the answer, you should ask your lender or provider to work with the credit ratings agencies to make sure there is no negative impact on your credit rating.
- You should get a quick decision – There is a fast track approval process in place and you should not need to provide evidence or have an affordability test.
- Other options – If the fall in your income is likely to be temporary, for example you’re self-isolating and then returning to work, your lender might offer you a payment freeze of less than three months, or offer you other options like lower monthly repayments, or extending the term of a loan.
- If you’re in a shared ownership property you can apply for a mortgage payment holiday from your lender. You should also be covered by the protection from eviction for tenants.
- If you have a buy-to-let mortgage and your tenants are struggling to pay their rent, you can apply for a three-month payment holiday.
- The payment freeze also applies to guarantor loans, logbook loans, home collected credit, credit union loans (where the credit union is regulated), buy-now pay-later agreements, rent-to-own agreements and pawnbroking agreements.
- If you have a car finance agreement including hire purchase, Personal Contract Purchase (PCP), Personal Contract Hire (PCH), conditional sale agreement or credit agreement to purchase a car, you can get a payment holiday of up to three months.
- Overdraft charges – Banks were due to bring in higher rates for overdrafts on 6 April 2020. However, for the next three months, they can’t charge you more for your overdraft than you would have paid before the new rates came in.
Action to take
- Check it’s right for you – Make sure you understand the implications of taking a repayment holiday. The provider has to give you this information. What will your monthly repayments be at the end of the three months? Will it take longer to pay off? How much extra interest will you end up paying? Are you sure it’s the right thing to do? Does your provider suggest any alternative options?
- Payment holidays – this will not be suitable for everyone and if you can afford your repayments you should continue to make them.
- Overdrafts – Go to your bank’s website to see whether you need to ask for the interest-free overdraft or whether they are applying it automatically.
If you were already struggling – If you have existing arrears and were already struggling to meet your monthly repayments a temporary payment freeze or overdraft isn’t likely to be the answer to your problems and you probably won’t qualify. Instead, you should get help managing your debts.
Are you getting all the help you’re entitled to?
This article is provided by the Money Advice Service.