The UK continues to be engulfed by the disruption and devastation brought about by Covid-19.
Although primarily a health issue, the strict isolation measures both our own and global governments have enforced has had a devastating impact on the economy.
Despite an unprecedented level of government support for many workers, people could still enter financial difficulty, and this will impact on people's ability to repay their debts. Lenders have reacted to this by taking measures to ensure that people who are having difficulty meeting their payments are offered support during this time.
Some banks and lenders will be offering more flexible plans for debt repayment during this time. We'll explain below what has been announced to date and how that could impact you across the next few months. But you must contact your lender to discuss directly with them, as their approach will differ from lender to lender.
Payment holidays and reduced payments aren't unique to the situation we are in at present. Banks and lenders always have these capabilities available for people that fall into financial difficulty. However, these will almost always be recorded on your credit report, which can hinder your ability to secure finance in the future.
If you are contemplating reduced payments during this time, you must contact your lender before doing so. If you fail to meet your repayments without prior communication, it could be treated in the same way as normal, with late fee charges and potential default action.
Will a credit card payment break impact my score?
Some lenders have agreed to offer payment holidays, however, unlike with mortgage payments (more on those later), there has been no specific government announcement as of yet regarding credit card debt.
The best thing to do is contact your lender directly if you feel you will need to take a repayment holiday, and they can advise on the best plan of action for you throughout this time.
Remember, you will continue to be charged your current interest rate on these payments, so this may increase the total cost of your borrowing. It may also mean you take longer to pay the debt back, so it's important you don't increase your debt if possible during this time.
Will a mortgage payment holiday impact my score?
For the majority of people, a mortgage is their highest monthly cost, which is why many people will have been reassured by the chancellor encouraging lenders to make payment holidays available for three months for those impacted financially by the Coronavirus.
That positivity was further underlined by the Financial Conduct Authority (FCA). The FCA announced their advice to lenders to offer three-month payment holidays, making sure customers wouldn't negatively impact their credit score and that no fees could be charged (interest is still allowed).
It's important to remember that although it won't impact your credit rating, there are consequences for taking a repayment holiday. Unless your mortgage provider explicitly states so, interest will not be frozen during this period. This means your total cost of borrowing will increase.
On top of this, it will change the nature of your agreement with them. This could influence the length of your mortgage agreement or the amount of your monthly payment, or potentially both. This will be something your mortgage provider can advise on directly.
What about my overdraft?
Although not directly related to payment holidays, several banks are also offering support with regards to the interest charged on overdrafts. Many had moved to make these services more expensive, which although decided a long time before the crisis, is unfortunate timing.
Flat interest rates for both planned and unplanned overdrafts were scheduled to hit 35-40% by April 2020, which is a significant cost if you are dipping into it during the crisis. Some are delaying these measures, whilst others are waiving interest altogether or offering interest-free up to amounts such as £300.
Disclaimer: All information and links are correct at the time of publishing.