Lenders have to offer you help if your household finances have problems because of Coronavirus.
This article looks at the help you can get for loans, credit cards, car finance, overdrafts and mortgages. They are all regulated by the FCA. It gives an overview and has links to more detailed articles.
It doesn’t cover government debts, utilities or rent – see Coronovirus – can’t pay bills for what is happening with those.
The general rule – 3 month payment break… then another 3 months
In April the FCA introduced a set of measures that offered 3 month payment breaks to many people whose household income has been affected by Coronavirus.
This has now been extended so you can get a second 3 month payment break if you need it.
They apply to:
- unsecured loans (including logbook loans, guarantor loans and doorstep lending),
- credit cards and catalogues
- car finance; and
- buy now, pay later deals.
The FCA has also introduced insurance payment breaks in some situations if you are paying monthly.
The details differ but the direction of all of these initiatives is the same – proving very practical help through payment breaks to people whose finances have been hit by Coronavirus.
Who can get this help?
Anyone whose household finances have been affected by Coronavirus can ask for this help.
It doesn’t have to be you directly. If your partner has lost their job or another relative who helps pays the bills is on furlough you may be having to pay more of the household bills – so your household’s income has been affected and you can get help with your debts even if your own income hasn’t changed.
You have to ask your lenders for the payment breaks. These breaks are not being given to everyone automatically. Your credit record will not be protected (see below) if you just stop paying.
The details for different types of debts
These are covered in detail here: Covid-19 – you can now get a second 3 month mortgage payment break.
That looks at how they work, how much extra you may have to pay when the repayment ends and looks at common questions such as whether you should take a mortgage payment break just to let you pay off more expensive debt such as credit cards,
This includes guarantor loans and logbook loans but NOT payday loans, see below for those.
Lenders must offer a temporary payment break for up to three months. Interest will still be added during this time, it isn’t frozen. You can get a second three month break at the end of the first if you need it.
If you have a guarantor loan, your guarantor will NOT be asked to pay if you have a payment break.
The rules don’t say how you will have to make up the missed payments. Your remaining payments could be increased or the term of your loan could be extended.
Credit cards, catalogues
Lenders must offer a temporary payment break for up to three months. At the end of this you can ask for a second three months break if you still need this.
Interest is added during this time, it isn’t frozen.
Your account remains open, you can still buy things on credit if you are under your credit limit. But unless you are very sure you can quickly get back to “normal”, it is probably a good idea to put as little as possible on credit, or you may end up with an impossibly large credit card debt for years.
If you had received one of the warning letters about persistent credit card debt and were worried that your account would be closed, then getting a payment break agreed will stop this while the payment break continues.
Banks must provide you with up to £500 of overdraft borrowing with no interest for 3 months. You can also ask for a reduction on overdraft charges if your overdraft is more than £500.
Check your bank’s website to see what they are offering. Some banks are providing interest-free overdrafts automatically. With others, you need to ask your bank.
Buy now pay later deals
One reader said:
I have an account with Very and have quite a large Buy Now Pay Later payment that’s due in June.
The FCA says that if you are in a “no interest” period, the lender should extend the promotional period for 3 months or six months if necessary.
See 3 month car finance payment breaks because of Coronavirus for details.
All lenders have to offer this and they can’t charge you for setting up the break. As this newspaper article says:
car dealers have started rolling out support for struggling customers in order to avoid a wave of cars being handed back by buyers.
If you have a payment coming up that you can’t afford, phone your lender up now and ask for the three month break. And if at the end of that you still have problems, you can ask for another three month break.
Payday loans – good news & bad news …
The rules for payday loans are different:
- the good news is that if you ask for a payment break interest will be frozen;
- the bad news is that will only be for a month, not the three months of help available for other sorts of debts.
See Coronavirus & payday loans – 1 month break with no interest which looks at why the FCA has taken this different approach and what you can do when the one month payment holiday ends. Because one month is going to be too short for most people!
Getting another payment break when the first ends
If you have already had a three month break, when it is coming to an end your lender should contact you and ask if you need further help.
An extra three months payment break can be given if you need it. This also applied to overdrafts – the requirement to give you a free £500 overdraft applies until the end of October this year.
You probably know more now about your situation then you did back in April and May. If you know you will soon be off furlough and “back to normal” you may only need 1 extra month. or you may be able to make some payments but not the full amount.
Interest is being added during these breaks, so making some payments will save you money if you can afford this.
“What should I do when my 3 month credit card payment break ends?” looks at a reader’s situation in more detail.
Agreed payment breaks won’t affect your credit record… but…
The FCA says that if a payment break, or reduced payment, are agreed with your lender, your credit records should not be affected by this.
Lenders have to be fair about this. So if you had already asked your lender for a break a few weeks ago and your account has been marked in arrears, the lender should now go back and correct that.
Even though your credit record should not be affected with the payment break showing as missed payments or arrears, the records will still show what you have paid. When you apply for credit in future, a lender may spot this, or you may be asked for banks statements which will show you have missed payments.
So in future it may be harder to get credit. See Covid-19 – credit score protection, but will it be harder to get credit? for details.
I think you need to be sensible here. If you have current financial problems, you need to get through these right now and payment deferrals can be a good choice. Don’t let worrying about your credit score in future stop you getting the help you need now in these uncertain times.
If you are unsure, talk to a debt adviser about your options.
Do you need more than just a payment break eg for interest to be frozen?
These payment holidays do not freeze interest on your debts.
If you expect your finances will return to normal after a couple of months, that may be fine. You can resume making your loan repayments and start paying off your credit card where the balance will have gone up because of the interest added during the payment break.
But if you think it will take a long while for your income to return to its previous levels, or if you were already struggling before Coronavirus, you need to say you need more help than just a payment break, explain you need a longer-term payment arrangement, letting you make lower payments, possibly zero for a while, with interest being frozen.
Lenders have to offer this in addition to payment breaks. As the FCA said in its announcement about the payment breaks:
These [new] measures won’t replace normal forbearance rules where these would be more suitable for a consumer in serious and immediate financial difficulty.
Here “forbearance” is legal jargon for freeing interest and accepting lower payments.
What if you can’t go back to normal payments at the end of the breaks?
This is a good point to think about your overall debt situation and how likely it is to improve. Talking to a good debt adviser can be very useful, so you can find out the pros and cons of the different options you have.
For credit cards, catalogues and most loans, if you can’t manage to get back to the normal payments at the end of your payments breaks, you can ask for a payment arrangement at that point. Find out more here: How does a payment arrangement work & is one right for you? And you can also ask for the lender to remove the interest that has been added during the payments breaks, so your debt will not have got any worse during this time.
But some debts are harder – you normally can’t get payment arrangements for mortgages and car finance. And for guarantor loans, the lender is likely to go after your guarantor. Take debt advice to find out what your options are.