The UK entered its second national lockdown on November 5 after an increase in the number of COVID-19 cases has led to the government taking drastic action as we head into winter and approach Christmas.
The four-week lockdown will last until December 2, with no current plans in place to extend that. The expectation is that four weeks gives enough time for current cases to pass and fewer new cases to emerge.
The pandemic has affected everyone in some shape or form this year, with many people having lost their jobs, businesses, and loved ones.
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Financially it has crippled the economy and in turn the livelihoods of millions of people.
One scheme that has been largely successful and helped those most in need is payment holidays for credit cards, personal loans, car finance, payday loans, and other types of consumer credit.
This was first announced by the Financial Conduct Authority (FCA) back in March as the country was placed in its first lockdown and was set to end on October 31.
However, the FCA has said that those struggling to pay may soon be able to apply for a deferral of up to six months, taking the scheme up until the end of March, which is also when Chancellor, Rishi Sunak, announced the Job Retention Scheme (JRS) would be running til.
What does a payment break mean?
A payment holiday is a period of time when you are not required to make payments on the credit you’ve borrowed. You will of course have to pay it off at a later date but it’s designed to help those most in financial need at this time due to the impacts of the pandemic.
There will be two proposals available for those that wish to apply for a payment holiday:
- Borrowers who have not already taken a payment holiday this year can apply for one - this could last for up to six months.
- Borrowers who are currently undertaking a payment holiday are eligible to apply for a second.
For short-term credit such as a payday loan, borrowers can apply for a deferral of one month if they have not yet done so.
The scheme is welcomed by many people that have struggled financially this year as it gives them more time to pay off any credit and not get themselves stuck into debt.
However, like with any loan, while you are not making the payments, these will continue to rack up interest so you will be left with a larger repayment at the end of the holiday.
But that will likely be the least of most people's worries, who are just glad they are being given the opportunity to take a little longer to repay during these difficult times.
What will also come as a relief is that new and extended payment holidays will not show up on your credit report; missed payments can have a detrimental effect on your score.
The FCA has also said that you should not contact your lender, but instead, await further updates.