Should you take a payment holiday?

Two million people in the UK have taken a mortgage ‘holiday’, pausing repayments to cope with the financial shock of the lockdown and the impact it has had on, well, everything, but particularly how much money we’re able to earn.

Banks are offering holidays on most other loans, too, including credit cards and car finance. You can ask for three months off paying what you owe, starting when you request a break (you have until 9 July). Those with an overdraft get the first £500 interest-free for three months.

But just because you can take a break from your debts, should you? Those struggling with cash flow will have no choice. But if you can afford to keep meeting repayments, you’ll save money. Interest is not frozen, so either repayments will grow once the holiday is over, or interest will be added on to the end of your loan and you’ll owe it for longer.

Credit reference agencies say the holiday won’t show up on your credit file, as it’s an ‘emergency payment freeze’, but you will damage your credit score if you can’t get back into repaying after the three months is up. It’s not yet clear if banks will extend holidays.

If you want a break, contact your bank (online will be quicker) – don’t just stop paying, or it’ll be recorded on your credit file that you defaulted. Some banks are offering interest-free overdrafts automatically, others expect you to ask for it, so check.