Making monthly payments for a loan or mortgage is just a normal part of life for many people, like paying rent, buying groceries and filling fuel in the family vehicle. But what happens in times when it becomes difficult to make this payment? An example of this would be the current economic crisis, where many people are either working from home at a reduced salary or unable to work at all.
What is a payment holiday?
A payment holiday is not your typical “holiday” – but it is a break. Ideal for desperate times when you know you are unable to make a payment on your loan or mortgage, you can reach out to your bank or loan provider in order to start a payment holiday. This is a previously decided upon amount of time that you can “take off” from making payments towards your loan or mortgage. The time off from paying towards this loan or mortgage could relieve you of a lot of stress during an already difficult time of your life. It could also allow you to focus your finances elsewhere.
Typically, you need to be in a dire situation in order to request a payment holiday. The bank or institution will review your file and savings and see if something (like a payment reduction) can take place instead of outright pausing your payments. With Covid-19 changing the way many people live their lives, including work and making money, banks (and other such institutions) had relaxed the requirements for these payment holidays.
While the word “holiday” is a positive and enticing idea, the amount of money required to be paid back remains the same and can (and often does) increase. The benefit of having the necessary time off is lessened when the realisation comes that your total loan or mortgage may have increased as a result. However, this is a necessary part of the process.
How long does a payment holiday last?
A normal payment holiday typically lasts only as long as it is required, i.e. for the borrowers to find a job or “settle in” to another way of life. During the Covid-19 epidemic, banks listened to scientists and doctors and agreed upon a date that seemed to fit with an estimated timeline of events, such as 31 May. Whether someone goes on a payment holiday for Covid-19 or another reason, the amount of time is decided upon before entering into the new agreement.
Can I extend my current payment holiday?
Only a small handful of direct lenders will offer current customers the chance to further extend their payment holiday. LuckyLoans.co.uk are the latest payday lender to announce an extension on existing payment holidays which gives individuals the chance to extend their loan for a further 3 months. This extension could allow individuals to pause their loan repayments for a total of 6 months.
Payment holidays can be extended, but this needs to be discussed and requested well in advance. Evidence needs to be presented to the bank or institution from the requester, proving that making a payment to a loan or mortgage is simply not possible. There will be an investigation into the matter and another conversation of time, where a new timeline will be agreed upon by both parties. In cases such as Covid-19, however, this timeline could change only on the part of the bank or institution and those with loans or mortgages who are unable to make payments will be notified.
While payment holidays are there to support those who are struggling, it is always important to get all information before making the decision to proceed into a payment holiday agreement. In some cases, these payment holidays may affect one’s credit score (as the person is not effectively reducing their debt).
Banks and other such institutions are there to help you with loans for school, houses, rent, cars, etc. They are also there to help you with a mortgage for a house or a business space. Banks and institutions are businesses and they need to make money to remain afloat. Payment holidays are a really great tool if you are aware of all of the moving parts and you have the ability to start paying loan installments again in the future.