It’s a good idea to understand the options available to you when your payment holiday (also called a payment freeze) on your loan comes to an end, especially if you’ve suffered a severe income drop.
What happens when your payment holiday is over?
Your lender will get in contact with you if you are coming to the end of a payment holiday (also called a payment freeze) to discuss your options.
It will be in your best interests to discuss next steps with your lender. If they don’t hear back from you they will restart your repayments automatically.
Under normal circumstances, the payments missed will be added to your outstanding balance, along with the interest.
This means your monthly repayments will be higher than before. How much higher largely depends on how long you have left on your loan term.
What options might your lender consider
There are several options your lender might discuss with you. However, many of these might have an impact on your credit report, and affect your ability to borrow money in the future.
Increasing the term of your loan
Increasing the amount of time you have to repay the loan will keep your repayment at the same level as they were before, or at least minimise the increases to your repayments.
For example, if you took out a three month payment holiday, your lender might agree to add three months onto the end of your mortgage term.
However, you might end up paying back more than your originally would because of the extra interest payments.
It’s important to remember to budget for making these repayments for a longer period of time.
Waive fees for missed payments
If you’re still struggling to make repayments, your lender might agree to waive fees and charges you would normally pay for late or missed payments. You should discuss this option with your lender.
Putting together a realistic payment plan
If your finances have been badly affected by the coronavirus outbreak, your lender might put together a different repayment plan.
This might include a combination of reducing your monthly repayments and extending the term of your loan to make it all more manageable.
Lenders are required to work with you to work out a repayment plan based on your circumstances.
I need help explaining my situation to my lender
If you need help with what to say you can use a template letter.
National Debtline have a range of letters
, including asking a statement showing what you have left to pay on your loan and asking creditors to hold off taking action while you get advice.
What legal protection do I have?
The Consumer Credit Act gives you rights when dealing with creditors such as loan providers. If you fall into arrears, they must:
- give you time to bring your account up to date before they take any more action
- send you regular statements and arrears letters if you fall behind.
If you received a payment deferral, or a different solution which was later deemed not to be suitable for you, any interest accrued during this relevant period should be waived.
If you make a complaint to your lender and you’re not happy with the response, you have the right to complain to the Financial Ombudsman Service
Impact of further support on your credit file
If your lender does offer you further support once your payment holiday ends, this will be recorded on your credit file. This could mean that you may find it more difficult to borrow money in the future.
Make sure you’ve claimed everything you’re entitled to
Make an emergency budget
If you’re worried about cashflow, have a look at what you’re spending and what income you have coming in.
Look at how to cut your household bills, such as switching providers for your gas, electricity or mobile phone contracts.
Next steps if you’ve missed a payment
If you have missed a personal loan payment, contact your lender to explain your situation. Try to avoid taking out more credit unless you know you can afford to pay it back.
These guides can help you to talk to your lender.
When to get debt advice
If you’ve already missed payments and are not able to come to an agreement with your lender, it’s best to get advice as soon you can, especially if you’ve got other debts as well.
Find out more on the StepChange website
about how debts are collected when you are in arrears.
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