COVID-19: Should you take a payment holiday?

The COVID-19 outbreak has spurred lockdown measures in cities around the world, placing restrictions on movement, social gatherings, and businesses. As a consequence, you may be struggling to make monthly repayments on a student, business or personal loan. Perhaps, you’re also worried about paying off your credit card debt.

Here are four things to consider to ease the burden on your pocket during this challenging time.

Banks and financial institutions are offering clients the option of a payment holiday on various types of loans. Payment holidays allow you to delay your repayments for up to three months, but you’ll still rack up interest on the balance of your loan, including the usual monthly fees. The good thing is that it’ll give you one less thing to worry about when your income has temporarily dried up. If this is something you need, you should call your financial service provider sooner rather than later.

Consider the terms and conditions of a payment holiday before opting in. The downside of postponing your monthly installments is that you will end up paying more in the long run. Your outstanding loan balance and payments will also be higher than they were before the payment holiday. You should also consider how it will affect your budget in the subsequent months. A payment holiday is not an option you should take lightly, which is why you should ask your financial provider for clarity about how much you will pay at the end of the relief period.

A payment holiday is not your only option. You should ask your lender whether you have credit insurance linked to your loan. This policy is meant to protect the borrower in the event of death, disability or unemployment. It’s a way of preventing borrowers from falling deeper into debt. However, not all policies are the same, so you should check the terms and conditions of your loan.

Since you’ll be delaying your repayments for up to three months, the obvious question to ask is whether this will affect your credit score. As many people are going through a tough time right now because of COVID-19, lenders may be putting measures in place to ensure your credit score is not negatively affected. But you should not be complacent. Ask your bank about how the payment holiday will be reported and whether it’ll affect your score. You’ll be able to check your credit report on ClearScore or by downloading our Android App to get real-time notifications.