Government and financial service providers are looking at ways to mitigate the inevitable impact the Covid-19 lockdown will have on the nation’s pockets, but consumers shouldn’t bank on payment holidays.
This is according to Benay Sager, Chief Operating Officer at DebtBusters, the country’s largest debt counsellor.
He says it is a good thing that the banks are looking at measures to assist consumers who may struggle to pay what they owe because the lockdown has affected their income.
“The rule of thumb, though, is that if you can continue to meet your repayments every month you should. If you can’t because the lockdown is affecting short-term cash flow, a payment holiday may be one option. If the real problem is that you’re overindebted then you should consider debt counselling.”
Until recently competition law has prevented banks agreeing a common plan, so presently there are a number of different offerings for individual customers or small enterprises. This may change in the near future as new regulations are gazetted to allow banks to share information about the best way to restructure loans to offer a so-called ‘payment holiday’.
Sager says whether the banks agree a common set of principles or consumers are considering one of the existing offers it’s essential to be aware of the terms and conditions. This is particularly true for consumers who may hold loans or accounts with a number of different banks.
“A payment holiday is very good news for someone who is facing a short-term cash crunch as a result of the lockdown, but it’s possible that the interest will keep running, even though payments are paused. This means that the total payment at the end of the loan term may be more than the original total. This doesn’t mean it’s an option that shouldn’t be considered if you’re facing a cash crunch as long as you’re aware you may be paying back a bit more.”
It is important that consumers don’t assume all lenders will offer a payment holiday and need to keep paying unless they’re specifically informed that they qualify for leniency. If so, then they must understand the length of the payment holiday and the interest implications.
He says that whether a leniency policy is in place or not, anyone who is struggling to make repayments should contact the lender immediately and try to agree a repayment plan.
If they are not able to negotiate affordable repayment terms themselves or owe too much to too many lenders, they should contact a reputable debt counsellor.