06 Oct Coronavirus Payment Holidays – Your Rights, Your Obligations, What Lenders Must Do
When the panic set in properly in March/April of this year nobody had any idea of how the disease was likely to pan out. Confusion reigned. It still does. There’s a lot of information out there and most of it is fairly clear and concise but we thought you may be helped if we also make clear what the current guidelines are around loans of the unsecured variety. Unsecured loans covers short-term instalment loans, one-off payday loans, longer term personal loans and guarantor loans. It’s worth mentioning that personal loans also cover logbook loans and doorstep credit.
The Situation Now
So far there have been over 1 million credit cards on a payment holiday and over 700,000 loans have been suspended too so if you need to take a break because of the virus you’re in good company. People have until October 31st 2020 to ask their lender for a payment holiday and as long as you were not already in financial difficulties the lender must offer you a 3 month holiday.
If you are already on a 3 month holiday and are worried about making payments once the holiday ends you can now apply for an extension of another 3 months. Or if your holiday has ended and you feel you need more time, ask your lender for another payment holiday and they should comply. But here’s the important thing, they don’t have to grant you another holiday if they feel that by doing so they will be putting you in further financial difficulty.
Let’s not forget that while the monthly payments have been frozen, the interest continues to accrue. That means that once the break finishes you will have more interest to repay than you did before. Some lenders are re-financing their loans by cancelling the original loan and replacing it with another for a similar amount plus the missed interest. Payments should be very similar to what they were before the freeze.
If you can pay something then pay it. It’s always better to pay something than nothing if for no other reason than to keep the interest payments down. This is called a partial payment holiday and as the name suggests, you only pay for part of your loan while the rest is deferred and added onto the loan at the end of the term. Or, as just stated, your lender will possibly re-finance with a separate loan that replaces the original one and includes the rolled up interest.
Be aware that the lender has no obligation to give you a payment holiday or partial payment holiday if they feel you are already experiencing financial difficulties prior to and separate from the coronavirus inspired havoc and that giving you a break will add to your problems rather than help them.
It may sound counter-intuitive or just plain wrong but remember that interest continues to be added to your loan or credit card and more interest means more payments or higher payments within the existing cycle. The reasoning is that if you are already struggling to meet current repayments then there’s no way you will be able to meet the new ones with extra interest.
For people with a genuine payday loan that’s repayable in one lump sum, they have until 31st October 2020 to apply for a one-month payment holiday. The FCA has told payday lenders they must offer at least a one-month holiday and more if it is considered prudent to do so. Crucially NO extra interest is added to the payday loan, unlike other loans. While lenders must offer a one-month payment break they are under no obligation to offer any further time to pay but can if they so choose to. That differs from other types of loans and the FCA has hinted that payday lenders should find other ways to help their customers still experiencing difficulties after their one-month holiday has ended.
A full listing of the available help for all types of lending and consumer finance can be found on the MoneySavingExpert website while the advice and guidance for firms and consumers from the FCA can be found here
Your Credit File
One of the biggest fears some people had after the effects of the flu-virus was how their credit rating might be affected by missing credit card, mortgage and loan repayments. Thankfully the regulator acted quickly to dispel these fears and has been loud and clear about how taking any form of sanctioned payment holiday will NOT affect your credit file in any way. As long as you have been given permission by your lender to take the holiday nothing adverse will be recorded against you on your file.
This does not mean your credit score won’t change because your score is amassed by a range of factors of which making regular payments to a credit commitment is only one. Other factors like your bank account activity or your total amount of debt will both affect your score. How you use your credit and what you spend it on will also have an effect on your credit score.
Please remember that once your payment holiday has ended and regardless of the situation with the flu virus when it does end, you cannot just go ahead and take another holiday if you feel like it without first asking your lender and getting permission from them, preferably in writing.
Emergency Cash Loans
Before the coronavirus hit our shores Badger Loans had a lending panel of around 40 lenders who could assist with emergency cash loans. When the virus hit we went down to 2 lenders willing to lend. We now have half a dozen at any one time though the panel has re-grown to its original size of 40 lenders. They just don’t all lend at the same time. If you need money urgently and are struggling to pay your bills the last thing you should be thinking about to get yourself out of the mire is a loan. Of any variety. If at all possible ask your family and friends first followed by the DWP if need be. They have access to state-funded loans for people on Universal Credit and if you can’t access those they may be able to point you in the right direction.
If after trying friends, family, the government, busking, selling things online or at the pawnshop, then and only then think about taking out a loan. Make it for the least amount possible with the best rate you can find for the least amount of time. Don’t take out a loan if you don’t know what your employment situation will be like in a couple of months’ time.