When the pandemic hit last year, the Financial Conduct Authority (FCA)  ‒ the financial regulator ‒ pushed lenders to offer borrowers payment holidays to provide them with some additional breathing space should they require it.

However, that help is being wound down now as we approach the end of what’s hoped to be the final lockdown, with 31 March the final date to apply for a payment holiday.

What is a payment holiday?

A payment holiday is when a lender allows a borrower to delay their repayments for a set period. So with a three-month payment holiday, you wouldn’t have to pay anything towards your outstanding debt for three months.

Crucially, this doesn’t mean that those payments are written off entirely ‒ you will still have to pay them eventually.

What’s more, interest continues to be charged on your debt over the period of your payment holiday, so while you’re provided with some short-term breathing space, the eventual cost of paying off that debt will go up compared with if you had continued with your normal repayments.

What debts can I get a payment holiday on?

If you want to ask your lender for a payment holiday because your finances have taken a hit due to Covid-19, then you have until the end of the month to do so.

This is available across a host of different forms of credit, from mortgages to credit cards and personal loans.

There are certain rules that cover the holidays for most of these forms of credit.

For example, generally you can request a three-month payment holiday, though this drops to just one month for payday loans. If you are already on a payment holiday for your home loan, you can also request an extension of up to three months, taking you to a total of six months. 

Importantly though, all mortgage, credit card and loan payment holidays must have concluded by 31 July.

If you’ve already had six months of payment holidays, then you can request more support though this may take a slightly different form, for example requiring you to make smaller monthly payments.

You can request a payment holiday from your lender directly. Many of the big names have dedicated online portals allowing you to do so, while you can also call them to request a holiday.

Will payment holidays hurt my credit score?

Technically, taking a payment holiday won’t be recorded on your credit record. That doesn’t tell the whole story though. Lenders will be able to see that you have had a period off paying off your debts because they’ll be able to see that your various credit balances haven’t decreased over a certain period.

What’s more, if you agree some further support measures after your initial payment holiday ends ‒ such as a period of reduced payments ‒ then this will be explicitly recorded on your credit record.

Is a payment holiday a good idea?

Payment holidays can provide some welcome relief if your finances are in a difficult position due to the pandemic, perhaps because you are on furlough or have lost your job.

However, there has been confusion among borrowers about what the impact of these holidays can be on your finances.

Given the fact that they will increase the eventual cost of your loan, and potentially have repercussions on your chances of getting credit in the future, mean that you should only ask for a payment holiday if you really need one.