We've answered your questions around payment holidays and put together some useful tips to get your finances back on track
COVID-19 has drastically changed the way that we live with many of us focusing on our health as a priority, but at the same time, financial wellbeing is as crucial as ever.
UK Finance revealed that by the end of May 2020, lenders had approved 1.8 million mortgage holidays and nearly 1.5 million payment holidays on personal loans and credit cards. While this provided a safety net for many people, it's important to know what it means long term for your finances, especially with so many different options available from lenders.
Here at Hitachi Personal Finance, we've answered some essential questions around payment holidays and given you some useful money-related tips to help you get back on track.
Since the end of March this year, payment holidays have been available to help those struggling to keep up with monthly repayments by providing a three-month break on mortgages, personal loans and credit cards. Once approved by the lender, no payments need to be made during this period however it's important to note that interest will continue to accrue and the deferred payments will still need paying once this relief period ends. This means it could take longer to pay off the loan and costs slightly more to account of the interest charged during the payment holiday.
Can a payment holiday affect my credit score?
Even though your credit score is protected during a payment holiday, taking one could still impact your ability to borrow in the future, for example, applying for a mortgage, credit card or loan. The FCA has confirmed that "lenders may take into account other information when making lending decisions, including information provided by you or bank account information." Effectively, lenders can use this in their decision-making stage by assessing affordability and ensuring applicants aren't potentially over committing themselves.
What are the downsides to extending my payment holiday?
Payment holidays should only be used as a last resort if you have no other financial means to meet your repayment. If you are now in a position to pay your regular repayments, then it's better to do this as you'll end up paying more in the long term if you don't. Deferred payments and accumulated interest will result in your payment increasing when your holiday ends.
If you are still struggling, then it's always best to speak to either your lender or one of the free debt advice provider (such as StepChange or the National Debt Helpline) as soon as possible, as they can offer other solutions better suited to your circumstances and work with you to get you back on track.
Get your finances back on track
It might feel overwhelming to start tackling your finances, but no one is expecting you to get it sorted overnight. Starting with some small steps and a little bit of determination, you will slowly get back to where you were before the pandemic.
Below we have put a list of our top tips to help you get back on track:
- Re-evaluate your monthly household budget and compare your new income to your outgoings. Make sure that you are completely honest with what you are writing down so that you can start budgeting appropriately.
- Money management apps can help you track your spending in real life with apps such as 'You Need A Budget (YNAB)' or 'Toshl' which lets you set a budget and savings goals. These apps will make keeping on top of your finances a doddle.
- Now is a great time to compare deals and change your provider if you find a better offer. Things like utilities, tv packages, mobile phone contacts are a great place to start. You'll be surprised how often a phone call to them will result in a lower monthly cost.
- Have a look at your direct debits and see if you can cancel any used ones. Many people sign up to subscription services that they don't need but never get round to cancelling, e.g. unused gym memberships, food subscriptions services, magazine subscriptions, etc. You'll be surprised how much more you have left in your bank account at the end of the month.
- Check your credit report thoroughly making sure all your details are up to date and that there isn't any incorrect information on there. Any mistakes could impact your credit score and future ability to lend if it's showing a missed payment or a hard search that isn't yours.
- Check what additional service you may get through your bank account provider – e.g. travel insurance, mobile phone cover, car breakdown - don't pay twice.