Payment holidays for struggling payday loan customers and £500 interest-free overdrafts to end on October 31
STRUGGLING payday loan customers and overdraft users have until October 31 to apply for payment holidays and a £500 interest-free overdraft.
The temporary support was set out by the Financial Conduct Authority (FCA) earlier this year to help Brits affected by the coronavirus crisis.
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But the financial regulator has today proposed new support, which says lenders should give users tailored help from November depending on their individual circumstances.
The FCA said that although the majority of consumers will start to resume payments in full from November, many will remain in financial difficulty.
Users of credit cards, personal loans, car finance, and high-cost credit such as payday loans currently have until October 31 to apply for a payment freeze.
Meanwhile, overdraft users can apply for a £500 interest-free buffer by the same date.
If you apply ahead of the deadline, the support will be available until January 31, 2021.
What is a payment holiday and should you apply for one?
PAYMENT holidays are when a lender agrees to pause your monthly repayments for a set amount of time.
This has to be agreed in advance, so don't stop making your repayments until your bank has given you permission to do so.
The majority of lenders are now offering payment holidays, so get in touch with your bank to find out what help it can give you.
Most of the time, it'll require you to fill out an online form.
Typically, payment holidays are offered in extreme circumstances and are designed as an emergency measure to help you through a difficult financial time.
If you think you need to take one, you should speak to your lender to discuss your options – but do note that the break in payments doesn’t remove any debt or financial obligations.
Most lenders will also still charge interest during this time, so be aware that these costs will keep building up.
You should also always continue to make your normal payments if you’re financially able to.
Sue Anderson, head of media at debt charity StepChange, said: “If you can continue to make your normal payments without difficulty, then you should.
“Any temporary measures being offered by lenders don’t remove financial obligations – they are designed as an emergency measure to help you get through a period where your income may have taken a serious knock.
“However, if you need to use them then you shouldn’t hesitate to talk to your lenders.
“While taking a payment break would usually be noted on your credit file, the credit reference agencies have confirmed that, during the current crisis, this should not have a future influence on your credit status.”
If you don't, new proposed help includes repayment arrangements which must take your wider financial situation into account.
Customers should also be given time to repay and not be pressured into repaying debts within an unreasonable short period of time.
Firms will also be expected to prevent customers' debt balances from escalating by suspending, reducing, waiving or cancelling any interest, fees or charges.
They'll also be expected to contact overdraft customers who've received temporary support to determine if they still need help.
If you do, firms may reduce or waive interest, start a staged reduction in the overdraft limit, or transfer the debt to reduce your overdraft usage.
The industry now has until 10am on September 21 to comment on the new draft guidance by the FCA.
How does it affect my credit score?
Under the proposals, any extra support from November will be reported to credit referencing agencies again following a freeze.
In March, credit reporting agencies agreed that any borrower who took up a payment holiday wouldn't see their credit score impacted.
Taking a payment break is usually reflected in your credit score, which lenders use to assess how risky you are as a borrower.
A bad score can affect whether future credit applications are accepted, how much interest you pay and how much you can borrow.
Should you apply for the help?
If you don't need the support to get by, you shouldn't rush to apply for it ahead of the deadline.
Payment holidays are offered in extreme circumstances and are designed as an emergency measure to help you through a difficult financial time.
A payment break doesn't remove any debt or financial obligations.
Most lenders will also still charge interest during this time, so be aware that these costs will keep building up, meaning you'll be in debt for longer.
If you think you need to take one, you should speak to your lender to discuss your options.
Alternatively, if an interest-free overdraft will help you get by, contact your bank for help.
Typically you'll need to apply for an overdraft if you don't already have one, and this involves a credit check.
The latest measures by the FCA comes after the regulator agreed to suspend plans to cut off credit cards for Brits who are persistently in debt.
Previously, credit card holders who regularly only made minimum repayments faced having their cards cut off starting in February if they failed to respond to warnings from their lender.
This action has now been pushed back to October at the earliest.
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