PAYMENT holidays and interest-free overdrafts for struggling payday loans and overdraft borrowers end on October 31.
Instead, the Financial Conduct Authority (FCA) proposed new support, saying lenders will be required to provide personalized assistance to users from November, depending on their individual circumstances.
Lenders initially offered payment leave for a period of three months, but this was then extended for another three months in June.
The FCA said that while the majority of consumers will fully resume payments from November, many will remain in financial difficulties.
Users of credit cards, personal loans, car loans and expensive credits such as payday loans currently have until October 31 to request a payment freeze.
What is a pay holiday and do you have to apply for it?
PAYMENT HOLIDAYS are when a lender agrees to pause your monthly repayments for a set amount of time.
This must be agreed in advance, so do not stop paying until your bank has given you permission to do so.
Most lenders now offer payment holidays, so check with your bank to find out what help they can offer you.
The deadline for applying for a pay holiday has been extended to March 31, 2021.
Usually you have to fill out an online form.
Pay holidays are usually offered in extreme circumstances and are intended as an emergency measure to help you through a difficult financial time.
If you think you should take one, talk to your lender to discuss your options — but keep in mind that the interruption of payments doesn’t eliminate debt or financial obligations.
Most lenders will also charge interest during this time, so keep in mind that these costs will continue to pile up.
You should also always continue to make your regular payments if you are financially able.
If you have already taken the full six months of paid vacation, you can no longer request an additional vacation.
Sue Anderson, head of media at StepChange debt counseling, said: “If you can continue to make your regular payments without any problems, then you should.
“Temporary measures offered by lenders do not remove financial obligations – they are intended as an emergency measure to help you through a period when your income may have taken a serious hit.
“However, if you need them, don’t hesitate to talk to your lenders.
“While taking a payment interruption is normally stated in your credit file, the credit reporting agencies have confirmed that during the current crisis, this should not affect your credit status in the future.”
Meanwhile, overdraft users can request a £500 interest-free buffer on the same date.
If you apply before the deadline, support will be available until January 31, 2021.
If you don’t, we’ve summarized the new proposed support measures below:
- Users may be offered a refund scheme that should take into account their broader financial situation.
- Customers should be given time to repay and not be pressured to pay back debts within an unreasonably short period of time.
- Companies are expected to prevent customer debt from escalating by suspending, reducing, waiving or canceling interest, fees or charges.
- Companies are expected to contact overdraft customers who have received temporary support to determine if they still need assistance.
- For users who need more help with overdrafts, companies can cut or waive interest rates, initiate a phased reduction of the overdraft limit, or transfer the debt to reduce your use of overdrafts.
- Clients should be given time to consider their options and, if necessary, seek debt advice before deciding on the support to take.
The proposals will now be consulted with industry given until 10am 21st September for comment.
Christopher Woolard, interim director at the FCA, said: “Our proposals are designed to help people who have faced payment difficulties as a result of the pandemic get back on track with tailor-made corporate support.
“For those who can restart payments, it’s in their best interest to do so.”
Richard Lane, director of external affairs at the charity StepChange, added: “While we welcome the broad scope of this new guidance, we are concerned that it leaves open the risk that different lenders will take very different approaches, leaving customers trapped in something. of a lottery lender in terms of how their ongoing problems can be managed.
“We need to understand how lenders will implement the guidelines in practice, but we welcome the strong signage to debt advice that the FCA is flagging as an appropriate action lenders should take.”
While Eric Leenders, general manager of personal finance at trade association UK Finance, said: “Lenders stand ready to provide tailored support and flexibility to those who continue to experience financial difficulties and will work closely with the Financial Conduct Authority.
“It is vital that those experiencing payment difficulties contact their provider as soon as possible and take advantage of the online support available to discuss the options available.”
As of May 21, lenders had approved nearly 1.5 million payment holidays on credit cards and personal loans, according to UK Finance.
It is not yet clear how many customers have claimed interest-free overdrafts of £500.
How will the changes affect my credit score?
Under the proposals, any additional support will be reported to credit reporting agencies from November after this information on reports has been discontinued.
In March, credit reporting agencies agreed that any borrower who took a payment vacation wouldn’t see their credit score affected.
Taking a payment break is usually reflected in: your credit score, which lenders use to assess how risky you are as a borrower.
However, taking out a new overdraft or increasing your existing overdraft limit was never covered, meaning this information has likely already been passed on to credit reference agencies.
A bad score can affect accepting future credit applications, how much interest you pay, and how much you can borrow.
How do you request a payment holiday or help with your overdraft?
HERE are the help pages for all the major banks so you can see what help you qualify for – and how to apply for it.
Credit card holidays
Loan repayment holiday
How does this affect users of expensive credit?
If you’ve taken a payment vacation on an expensive credit, such as a personal loan, you’ll be happy to know that help will be available until January 31, as long as you apply before the October 31 deadline.
If you are still in financial difficulties after this, you should talk to your lender about your options.
Keep in mind that any additional help will be marked on your credit score.
When you are no longer in financial difficulties, you are expected to resume payments as previously agreed.
How does this affect overdraft users?
If you are able to do so, you must pay off your existing overdraft before the January deadline or you may incur charges.
But if you do need support, your bank can lower or waive the interest.
The FCA said companies should not lower the credit limit, suspend or remove the overdraft for a customer if that would cause further financial problems.
If you are looking for a new overdraft or an increased limit, you must request it in the usual way from your bank, which will be subject to a credit check.
The FCA said these credit checks can look beyond the current stressful environment if it is reasonable to expect the client’s financial position to improve.
Do you need to request the help?
If you don’t need the support to get by, don’t rush to apply for it before the deadline.
Pay holidays are offered in extreme circumstances and are intended as an emergency measure to help you through a difficult financial time.
A payment interruption does not remove debts or financial obligations.
Most lenders will also charge interest during this time, so keep in mind that these charges will continue to pile up, leaving you in debt longer.
If you think you should get one, talk to your lender to discuss your options.
Alternatively, if an interest-free overdraft helps you get by, contact your bank for assistance.
Usually, you’ll need to request a debit balance if you don’t already have one, and this involves a credit check.
The latest measures from the FCA come after the regulator agreed to suspend plans to take out credit cards for Britons who are constantly in debt.
Earlier, credit card holders who regularly made only minimal refunds were faced with having their cards cut off from February if they didn’t respond to warnings from their lender.
At the time, this action was postponed to October at the earliest.