Payment holidays for struggling payday loan customers and £500 interest-free overdrafts to end on October 31
STRUGGLING payday loan customers and overdraft users have until October 31 to apply for payment holidays and a £500 interest-free overdraft.
The temporary support was set out by the Financial Conduct Authority (FCA) earlier this year following the coronavirus crisis.
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Lenders initially offered payment holidays for a three-month period, but it was then extended for another three months in June.
It’s helped millions of Brits during the pandemic, but the financial regulator today said it expects the measures to end in October.
Instead it’s proposed new support, which says lenders should give users tailored help from November depending on their individual circumstances.
The FCA said that although the majority of consumers will start to resume payments in full from November, many will remain in financial difficulty.
Users of credit cards, personal loans, car finance, and high-cost credit such as payday loans currently have until October 31 to apply for a payment freeze.
Meanwhile, overdraft users can apply for a £500 interest-free buffer by the same date.
What is a payment holiday and should you apply for one?
PAYMENT holidays are when a lender agrees to pause your monthly repayments for a set amount of time.
This has to be agreed in advance, so don’t stop making your repayments until your bank has given you permission to do so.
The majority of lenders are now offering payment holidays, so get in touch with your bank to find out what help it can give you.
Most of the time, it’ll require you to fill out an online form.
Typically, payment holidays are offered in extreme circumstances and are designed as an emergency measure to help you through a difficult financial time.
If you think you need to take one, you should speak to your lender to discuss your options – but do note that the break in payments doesn’t remove any debt or financial obligations.
Most lenders will also still charge interest during this time, so be aware that these costs will keep building up.
You should also always continue to make your normal payments if you’re financially able to.
Sue Anderson, head of media at debt charity StepChange, said: “If you can continue to make your normal payments without difficulty, then you should.
“Any temporary measures being offered by lenders don’t remove financial obligations – they are designed as an emergency measure to help you get through a period where your income may have taken a serious knock.
“However, if you need to use them then you shouldn’t hesitate to talk to your lenders.
“While taking a payment break would usually be noted on your credit file, the credit reference agencies have confirmed that, during the current crisis, this should not have a future influence on your credit status.”
If you apply ahead of the deadline, the support will be available until January 31, 2021.
If you don’t, we’ve rounded up the new proposed support measures below:
- Users may be offered a repayment arrangement which must take their wider financial situation into account.
- Customers should be given time to repay and not be pressured into repaying debts within an unreasonable short period of time.
- Firms will be expected to prevent customers’ debt balances from escalating by suspending, reducing, waiving or cancelling any interest, fees or charges.
- Firms will be expected to contact overdraft customers who’ve received temporary support to determine if they still need help.
- For users who do need more overdraft help, firms may reduce or waive interest, start a staged reduction in the overdraft limit, or transfer the debt to reduce your overdraft usage.
- Customers should be given time to consider their options and to seek debt advice, if necessary, before deciding on the support they take.
The industry now has until 10am on September 21 to comment on the new draft guidance by the FCA.
Christopher Woolard, interim chief executive at the FCA, said: “Our proposals are designed to help people who have been facing payment difficulties because of the pandemic get back on track with tailored support from firms.
“For those who can restart payments, it is in their best interests to do so.”
Richard Lane, director of external affairs at StepChange, said: “While we welcome the broad thrust of this new guidance, we have concerns that it leaves open the risk of different lenders adopting very different approaches, leaving customers caught in something of a lender lottery in terms of how their ongoing problems may be managed.
“We need to understand how lenders will implement the guidance in practice, but we welcome the strong signposting to debt advice that the FCA flags as an appropriate measure that lenders should put in place.”
As of May 21, lenders had approved almost 1.5million payment holidays on credit cards and personal loans, according to trade body UK Finance.
It’s not yet clear how many interest-free overdrafts of £500 lenders have offered.
How do the changes affect my credit score?
Under the proposals, any extra support from November will be reported to credit referencing agencies again following a freeze.
In March, credit reporting agencies agreed that any borrower who took up a payment holiday wouldn’t see their credit score impacted.
Taking a payment break is usually reflected in your credit score, which lenders use to assess how risky you are as a borrower.
Taking out a new overdraft or increasing your existing overdraft limit aren’t covered by this, which means this information has likely already been passed onto credit reference agencies.
A bad score can affect whether future credit applications are accepted, how much interest you pay and how much you can borrow.
How to apply for 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 may be eligible for - and how to apply for it.
Credit card holidays
Loan repayment holidays
Overdrafts
How does it affect users of high-cost credit?
If you’ve taken a payment holiday on high-cost credit, such as a payday loan, you’ll be pleased to know that the help will be available up until January 31.
If you’re still in financial difficulty after this, you should speak to your lender about your options.
Just keep in mind that any extra help will be marked on your credit score.
If you’re no longer struggling financially, you’ll be expected to resume payments as previously agreed.
How does it affect overdraft users?
If you’re able to, you should pay off the interest-free £500 overdraft buffer ahead of the deadline or you may be charged fees.
But if you still need support, your bank may reduce or waive the interest.
The FCA said firms also shouldn’t reduce the credit limit, suspend or remove the overdraft facility for a customer if that would cause further financial hardship.
If you’re looking for a new overdraft or an increased limit, you’ll need to apply to your bank in the usual way, which will be subject to a credit check.
The FCA said these checks can look beyond current stressed circumstances if it’s reasonable to expect the customer’s financial position will improve.
Should you apply for the help?
If you don’t need the support to get by, you shouldn’t rush to apply for it ahead of the deadline.
Payment holidays are offered in extreme circumstances and are designed as an emergency measure to help you through a difficult financial time.
A payment break doesn’t remove any debt or financial obligations.
Most lenders will also still charge interest during this time, so be aware that these costs will keep building up, meaning you’ll be in debt for longer.
If you think you need to take one, you should speak to your lender to discuss your options.
Alternatively, if an interest-free overdraft will help you get by, contact your bank for help.
Typically you’ll need to apply for an overdraft if you don’t already have one, and this involves a credit check.
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The latest measures by the FCA comes after the regulator agreed to suspend plans to cut off credit cards for Brits who are persistently in debt.
Previously, credit card holders who regularly only made minimum repayments faced having their cards cut off starting in February if they failed to respond to warnings from their lender.
At the time, this action were pushed back to October at the earliest.