MILLIONS of borrowers who are struggling financially due to coronavirus could risk damaging their credit scores if they leave it too late to ask for a payment holiday.
Most banks and lenders are allowing customers to apply for a three-month break on their mortgages, credit cards and loans following the impact COVID-19 has had on the economy.
But new research from Credit Karma UK shows millions of people are yet to contact their creditors – despite having already missed a payment, or worrying that they’ll slip into the red.
Missed payments can impact your credit score, making it harder to get accepted for finance in the future.
Borrowers can also find themselves being hit with hefty late fees if they don’t make their repayments.
However, credit reporting agencies have agreed that any borrower who takes up a payment holiday won’t see their credit score impacted.
Which lenders are offering payment breaks?
THE Sun has handy guides on which bills and payments you may be entitled to get a break from.
- Which banks are offering mortgage holidays?
- Which lenders are offering loan and credit card holidays?
- Which payday lenders are offering payment holidays?
- Which insurance providers are offering payment holidays?
- Which councils are offering council tax holidays?
Credit Karma estimates around 3.2million people have already missed a payment due to coronavirus, while another 4.9million expect they will in the future.
Of these borrowers, around 5.1million (63 per cent) have not yet applied for help from their bank or lender.
As well as failing to speak to their lender at all, 1.5million people are still waiting to be approved for a payment break.
Credit Karma claims it takes an average of five working days for a payment holiday application to be accepted.
Instead of asking for help, Credit Karma says struggling borrowers are instead dipping into savings, taking informal loans with friends and family, or even turning to payday loans.
Akansha Nath at Credit Karma said: “Credit reporting agencies have agreed that any consumer using an ‘emergency payment freeze’ for those affected by coronavirus won’t see their credit score impacted.
“So for those in financial distress it’s a key lifeline.
“But these arrangements are rarely put in place overnight.”
How to ask for a payment holiday
YOUR first step is to check your lender is offering a payment break.
If they are, they'll most likely have an online form which you'll need to fill out.
For customers who plan on speaking to creditors over the phone, please keep in mind that lines are extremely busy.
It's important to remember that it's up to your bank or lender to decide who gets a payment break.
If you're considering a holiday on your payments, Credit Karma suggests the following:
- Get a written agreement: Try to get all agreements from your lender in writing to avoid being caught out. If you notice that missed payments are having an impact on your credit score you may need to evidence approval from your lender
- Think ahead: Getting approval for your repayment holiday can take time. Try not to wait until you’re out of money to apply for a break – if you leave it too late you may run out of time, which can have an impact on your credit score.
Sara Williams of Debt Camel told The Sun: "It's great advice for people whose household finances have been affected by coronavirus to ask for payment break.
"Getting a three month payment holiday agreed for your mortgage, loan, car finance or credit cards can remove a big source of worry – so the sooner you do this the better."
However, if you can continue to make your payments as normal, you should continue to do so without a payment break, Citizens Advice has previously warned.
This is because any unpaid interest will probably still need to be paid back eventually, and customers may find themselves slapped with higher rates once their payment holiday is over.
Breaks can also lengthen the term that the money is paid back, and ultimately cost more over time.
Dame Gillian Guy, chief executive of Citizens Advice, added: "Another major concern is that these protections don’t seem to cover the most vulnerable borrowers, such as those with payday loans."
We've explained how to apply for a three month mortgage holiday if you’re struggling due to coronavirus.
Payday lenders are also offering payment holidays for struggling borrowers – how to get help.
Here's some more information about what to do if you lose your job due to coronavirus.
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