Find out about the measures introduced to support you if you are experiencing a change in financial circumstances due to coronavirus (Covid-19).
If you’re struggling with your finances because of coronavirus, or if you’re coming to the end of a payment freeze and wondering what happens next, there are several measures that have been introduced to help.
Learn more about:
- taking a payment holiday
- personal loans and credit cards
- high-cost short-term credit (including payday loans)
- motor finance
- other forms of credit (such as rent-to-own, buy-now pay-later, pawnbroking)
- coming to the end of a payment holiday
- support after 31 October 2020
- vulnerable consumers
- if you can afford to make some of your repayments, even if it’s a smaller amount than usual, you should continue to do so
- lenders can continue charging interest during a payment holiday (the only exception to this is high-cost short-term credit, including payday loans, where additional interest shouldn't be charged)
- you may end up with more to pay at the end of a payment holiday
- under some of these proposals, your lender doesn’t have to give you a payment holiday if it isn’t in your best interests
- you shouldn't cancel or reduce payments until you’ve contacted your lender
If you’re thinking of taking a payment holiday for the first time, make sure you contact your lender as soon as you think you may struggle to make your next payment.
Lenders have committed to responding to calls as soon as possible, but you may face delays due to the higher number of callers and staff having to work from home.
If you have general questions for your lender, make sure you check their website first to see if the answer is available online.
If you have an arranged overdraft
Until 31 October 2020, you can ask your main current account provider for up to £500 of overdraft borrowing with no interest for 3 months. You can also ask for help with the cost of your overdraft above this amount if you need it.
If you've already received this support for 3 months, you can request it for another 3 months.
To find out what your bank or building society is doing, and whether you need to act to benefit from this support, check their website.
If you already have support in place with the cost of your overdraft
Your current account provider will contact you to let you know that your period of interest free overdraft, and any other support, is coming to an end. They will tell you what other support is available and how you can access this support, if you need it.
The options you’re offered will depend on your circumstances. Your lender should explain what these options will mean for you.
If your current arranged overdraft is below £500
Once your interest free amount is in place, you will not pay any interest on the amount of your current overdraft limit. You could also ask your provider to increase your overdraft limit to £500, subject to checks on affordability.
If you don’t have an overdraft
You can request a new overdraft. This will be subject to normal checks on affordability.
If your current arranged overdraft limit is more than £500
Firms are only required to provide up to £500 interest free.
If you are experiencing difficulties with your finances due to coronavirus, additional help with the costs above the £500 interest free amount will be available.
For example, you may be able to access a reduced rate, or additional interest free borrowing.
If you have a Basic Bank Account
This measure applies to personal current accounts, but not Basic Bank Accounts (as these can’t have arranged overdrafts), so contact your provider about what’s possible for you.
Sometimes your bank may allow you to become overdrawn even if you don’t have an agreed overdraft. They may also allow you to borrow more than your agreed limit. This is called an unarranged overdraft.
Last year, we introduced rules limiting how much firms could charge customers who use an unarranged overdraft. Many firms don't charge you for this. Those that do charge, apply an interest rate that is no higher than they charge for arranged borrowing.
You should try not to rely on unarranged borrowing if possible. There is no guarantee your bank will agree to it and you may be eligible for an arranged facility.
Contact your bank to find out about your options.
Taking a payment holiday
You can apply for a payment holiday or partial payment holiday until 31 October 2020.
- A payment holiday is a period of time, agreed with your lender, where you don't have to make any payments.
- A partial payment holiday is period of time, agreed with your lender, where you can make reduced payments.
Remember, a payment holiday is temporary and you will still have to pay back the full amount later.
If you can afford to keep up repayments, either in full or a reduced smaller sum, then it is in your interests to do so. Interest will continue to build during the payment freeze and you may need to pay back more later.
For example, if you agree a payment freeze for 3 months with your lender, this means that after 4 months you will owe a larger amount.
What this means for you
If you are having difficulty making payments because of coronavirus, you may be able to make no (or small) payments for a period of 3 months.
If you have already taken a payment holiday and are still having temporary payment difficulties due to coronavirus, you can request another payment freeze for another 3 months.
You can apply for a payment holiday or partial payment holiday until 31 October 2020.
Payment holidays and your credit file
Our guidance published in July 2020 (and our previous guidance published in April 2020), makes clear that if you take a payment holiday then it won’t have a negative impact on your credit file.
This should help make sure that there is no long-term negative impact on your credit file if you're able to get back on track at the end of a payment holiday.
However, this doesn't mean that your credit score will not change over this period, as these are influenced by a wide range of factors.
You should also remember that credit files aren’t the only source of information that lenders can use in lending decisions. Factors other than payment history may also be relevant. For example, lenders may take into account your bank account information, or consider your use of credit products or how much you are in debt, when making a lending decision.
Your lender should provide you with general information about the potential impact of a payment holiday on any future lending decisions.
It’s also important to remember that the protection to your credit file won't continue indefinitely. If your payment holiday comes to an end, and you don't make a payment under the terms agreed with your lender, this can be reported to your credit file.
Consider whether these options are right for you
While these measures are designed to help you during this difficult time, they may result in increased costs in the longer term. So:
- think carefully before entering into one of these arrangements
- only do so if you need immediate and temporary support
- if you can afford to make some of your repayment, even if it is a smaller amount than usual, you should continue to do so
Be as open and transparent as possible with your lender, so that they can offer you the most appropriate support.
If you have a personal loan, credit card, store card or catalogue credit product, and you’re facing temporary payment difficulties due to coronavirus, you have until 31 October 2020 to apply for a payment holiday.
This also includes guarantor loans, logbook loans and home collected credit.
Cancelling your credit card, store card or catalogue credit
It’s important to be aware that lenders are not prevented from cancelling your credit card, store card or catalogue credit.
However, if you depend on these credit products for meeting essential living expenses, then you should tell your lender immediately. Essential living expenses could include:
- council tax
- food and utility bills
- school uniform
- baby essentials
Other forms of credit
We have introduced measures covering other forms of credit, including:
- high-cost short-term credit (including payday loans)
- motor finance, including hire-purchase and leasing agreements
- buy-now pay-later
High-cost short-term credit (including payday loans)
If you’re having temporary difficulties meeting payments due to coronavirus, up to 31 October 2020 you can request a payment holiday on your high-cost short-term credit loan for at least 1 month.
High-cost short-term loans usually charge high interest rates. Under our measures, the lender will not charge you the additional interest that would otherwise build up in respect of the 1-month payment holiday. You will still have to resume your payments following the payment holiday, and you will still owe the outstanding balance.
You can request a payment holiday at any point up to 31 October 2020, but your lender will only be required to grant you a payment holiday on your loan once.
If you’re still facing payment difficulties when the freeze is over, your lender should offer you further support in line with our rules. This may involve allowing you to make up your missed repayments in an affordable way – whether, for example, by one single payment at the end of the term, or by a number of smaller payments.
If you think your finances won’t be back on track after a month, you should speak to your lender about other options – including an affordable repayment plan.
If you’re having temporary difficulties meeting finance or leasing payments due to coronavirus, you can apply for a 3-month payment holiday up until 31 October 2020. If you have already taken a payment holiday, and are still in temporary financial difficulty due to coronavirus, you can apply for another 3-month freeze up until 31 October 2020.
Firms should not alter aspects of your Personal Contract Purchase (PCP) or Personal Contract Hire (PCH) agreement in a way that is unfair. For example, firms should not recalculate the value of your car based on a temporary decrease in used car values (due to coronavirus) in order to charge you more each month through your ongoing repayments.
If you want to keep your vehicle at the end of your PCP agreement, but you do not have the cash to cover the outstanding balance due to coronavirus-related temporary financial difficulties, firms should work with you to find a solution.
Additionally, if you are experiencing temporary payment difficulties due to coronavirus and need the vehicle, your motor finance provider should not take steps to end the agreement or try to repossess the vehicle unless you provide consent for the repossession to go ahead.
Your provider should explain to you any impacts of suspending the repossession, including on the residual value of the vehicle.
If you are having temporary difficulties meeting payments due to coronavirus, you have until 31 October 2020 to apply for a 3-month holiday on repayments to your rent-to-own agreement. If you have already taken a payment freeze and are still in temporary financial difficulty due to coronavirus, you can apply for another 3-month freeze up until 31 October 2020.
In addition, if you need the goods during this period, and you are facing temporary payment difficulties as a result of coronavirus, they will not be repossessed.
What’s more, where social distancing means rent-to-own firms are unable to collect or repossess your goods, they should not charge you extra for this unavoidable extension of your agreement.
If you are facing temporary payment difficulties because of coronavirus, you have until 31 October 2020 to ask for a 3-month freeze on repayments to your buy-now-pay-later agreements. If you have already taken a payment holiday and are still in temporary financial difficulty due to coronavirus you can apply for another 3-month freeze up until 31 October 2020.
If you have a buy-now-pay-later agreement and you are within a promotional period, your lender should extend the promotional period by the length of the freeze period.
During a promotional period, you do not have to make repayments each month but will be charged interest on any balance you have not paid back by the end of that period.
If you are having temporary difficulties meeting payments due to coronavirus, you have until 31 October 2020 to request a 3-month freeze on your pawnbroking agreement. If you have already taken a payment freeze and are still in temporary financial difficulty due to coronavirus you can apply for another 3-month holiday up until 31 October 2020.
This will involve the redemption date being extended for this period. If the redemption date has already passed, it should be agreed that no steps will be taken to sell an item you have pawned for that period.
If notice of intention to sell has been given to you already, the firm should suspend the sale for the period of the payment freeze.
If you have taken a payment holiday, your lender will get in touch with you about what happens when it ends.
If you can start to make repayments, in full or in part, then it’s in your best interests to do so. Your lender will work with you to find the best way of catching up on missed payments.
If you cannot afford to start making repayments, then you should let your lender know as soon as possible. More support is available and firms will consider what is in your best interests.
In the case of credit cards, personal loans, motor finance, rent-to-own, buy-now-pay-later and pawnbroking agreements, the firm may grant you a second full or partial 3-month payment holiday or another option. You can apply for another 3-month freeze up until 31 October 2020.
For buy-now pay-later agreements, where the loan is in the promotional period, you have until 31 October 2020 to request an additional extension to that period.
For pawnbroking agreements, where the loan is within the redemption period, you have until 31 October 2020 to request an extension to that period or, if the redemption period has already finished, your lender should suspend the sale for the period of the payment holiday.
From 1 November 2020, firms will continue to provide support, but this will be tailored to your individual circumstances. This is available whether you need more support or if you need support for the first time.
You will need to be as open and transparent as possible about your situation when talking to your lender. This will help make sure they give you options that meet your needs.
If you’re struggling financially, speak to your lender about the possibility of support with the cost of your overdraft. This may include measures such as:
- reducing or waiving interest
- agreeing a programme of staged reductions in the overdraft limit and your balance
- supporting you to reduce your overdraft usage by transferring the debt to an alternative credit product on more favourable terms
Other credit products
The following measures apply to:
- personal loans and credit cards including store or catalogue credit product
- high-cost short-term credit including payday loans
- motor finance
- other forms of credit such as rent-to-own, buy-now pay-later
If you’re struggling to make payments, firms should:
- provide support tailored to your individual circumstances
- work with you to provide support before you miss payments
- be flexible and employ a full range of shorter and longer-term options to support you and minimise stress and anxiety caused by financial difficulty – this could include a period of no or reduced payments
- give you time and opportunity to repay and not pressurise you into repaying your debt within an unreasonably short period of time
- put in place sustainable repayment arrangements that are affordable and take account of your wider financial situation including other debts and essential living expenses
- prevent your balances from escalating once they have put in place a repayment arrangement by suspending, reducing, waiving or cancelling any interest, fees or charges necessary to make that happen
- recognise and respond to the needs of vulnerable customers, signposting you to debt help or money guidance, and allowing you to seek debt advice before making a decision on the support you take. Your options will depend on your circumstances – make sure you contact your lender about what options are best for you.
Further support and your credit file
If you need more support to get back on track at the end of payment holidays taken under our guidance, or support after 31 October, that extra support is likely to be reflected on your credit file, depending on what is agreed with your lender.
If any more support is provided, we expect lenders to let you know what this will mean for your credit file.
Where to find help managing money and debt
Remember, if you have longer-term financial problems or are in any other financial difficulty, other options may be more appropriate.
Find out more about managing money and debt if you've been affected by the coronavirus pandemic.
This information might also be helpful to you if you already had payment difficulties before the pandemic and may be in longer-term financial difficulty. Or, if you’re worried about how to manage your payments and debts in the future.
For more information on managing your money during and after the coronavirus pandemic, you can also visit the Money Advice Service’s Money Navigator Tool.
Your lender should consider the needs of vulnerable customers when carrying out these measures. Circumstances that may cause you to become vulnerable include:
- poor health (physical or mental)
- low financial or emotional resilience
- life events such as bereavement or divorce
- low capability, including poor digital skills (eg your ability to communicate and make transactions online), language and cognitive skills, and low financial capability.
Your lender should be aware that coronavirus and the associated public health measures are likely to worsen personal circumstances that can cause vulnerability.
The situation may also cause many people who would not normally think of themselves as vulnerable to suddenly face personal circumstances that can cause vulnerability.
If you think you’re in circumstances that mean you’re vulnerable, then it’s important that you let your lender know when you contact them, so they can work out how best to support you.
22/06/2020: Information added in highlight box on the next steps when these measures end.