It was announced today that the government’s credit card freeze and interest-free overdraft plan has been.
While this might be good news if you’re struggling with your finances, this isn’t the time to take advantage of a ‘free’ payment holiday if you don’t really need it. The reason being that this option isn’t actually free, as you’ll end up paying more interest in the long run.
Not sure whether to freeze your payments? This article should help you understand the impact of a payment holiday on your finances so you can make an informed decision.
How payment holidays work
The government initially proposed payment freezes back in, as the negative effects of coronavirus began to take their toll on consumers.
Now, it’s been agreed that if you have a credit card, store card, catalogue credit or personal loan, you can. You also have until the end of October to apply for a £500 interest-free overdraft if you need to.
Once the payment holiday period is over, you’ll need to repay your debt along with any interest that’s been accrued. (If you’re still unable to make your repayments at the end of the ‘holiday’, the FCA has asked lenders to support people by reducing their credit card and loan payments for a further three months.)
Are you struggling to make ends meet? Take a look at the range of support on offer, from mortgage holidays to discounts for key workers, in the.
Can I apply for one?
Anyone who’s struggling to manage their finances due to coronavirus can apply to freeze their credit card payments. Although, banks may be stricter following the extension in who qualifies for a payment deferral.
If you’ve got other types of credit agreement, such as a payday loan or rent-to-own agreement, you can find more about the financial support available to you on the.
Will it affect my credit score?
No, the FCA have made it clear that if you choose to freeze your payments, your credit score and report won’t be affected for the duration of the payment holiday.
The UK’s three credit reference agencies - Equifax, Experian and TransUnion - have agreed to freeze people’s credit scores when they halt their payments with their lender.
Remember that while lenders won’t be able to tell from your credit report if you’ve deferred your payments, there are other ways they can check. For example, they might ask you for a copy of your bank statement if you apply for credit through them.
At ClearScore we show you your Equifax credit score.- it’s the first step to taking control of your finances.
Should I freeze my payments?
If you can’t afford to make your payments right now (maybe you’ve lost your job due to coronavirus) freezing your payments might offer you a bit of respite from your money worries.
But don’t forget - although your payments are frozen, the interest you owe won’t be. This could end up having a significant impact on the amount you need to pay back once payment holidays are over.
Before you make a decision, make sure you:
- Think carefully about the impact it could have on your finances in the future.
- Only freeze your payments if you need urgent, temporary financial help.
- Continue to pay as much of your bill as you can afford to, even if it’s less than the minimum repayment.
Christopher Woolard, the FCA’s interm CEO, has advised "where consumers can afford to make payments, it is in their best long-term interest to do so, but for those who need help, it will be there.”
If you decide that freezing your payments is the best option, it’s important that you agree this with your lender before you stop paying. Missing payments and cancelling direct debits before you’ve agreed a plan with your credit provider is likely to damage your credit score, making it harder for you to access credit down the line.
To arrange a payment freeze, you’ll need to get in touch with your lender directly. Bear in mind that phone lines are likely to be extremely busy during this period, so if you can contact them online you might get the help you need faster.
Ultimately, if you can afford to keep repaying your balance, you should continue to do so.
If money worries are keeping you up at night, there are organisations who can help.offer free, expert debt advice - it’s completely confidential and all online, so don’t suffer in silence.