Payment freeze: How does a payment freeze work? | Personal Finance | Finance
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Payday loans are not covered by the payment freeze scheme, and neither are cars bought on a hire purchase or through a finance deal. The Financial Conduct Authority (FCA) said: “We are looking at these areas, and other specialist types of lending, and expect to announce specific proposals in due course.” Additionally, peer-to-peer loans do not come under the rules, although the FCA said it expects lending companies to help customers who are struggling.
How does a payment freeze work?
A payment freeze or holiday is a deal between a lender and a borrower to pause regular repayments for a set period of time.
On March 17, the Government announced that homeowners who are up to date with their mortgage repayments can apply for a three-month payment freeze.
Arranging a payment freeze or reduction means your account will not fall into arrears, while giving lenders time to get back on their feet.
On April 2, the FCA proposed a range of temporary measures it felt lenders could offer to support borrowers.
READ MORE: Martin Lewis gives advice on credit card payment holidays (2020-04-30) [VIDEO]
These measures included a temporary payment freeze on loans and credit cards for Brits facing hardships.
Christopher Woolard, interim Chief Executive at the FCA, said at the time: “The changes will provide support for consumers with credit cards, loans and overdrafts, facing temporary financial difficulties because of the pandemic.
“Customers should think carefully before making use of these measures and only do so if they need immediate help.
“Where they can still afford to continue making payments, they should continue to do so.”
Experian, Equinox and TransUnion have all agreed to an “emergency payment freeze”, with new guidance which makes sure scores are not affected during the agreed duration of the payment freeze.
The emergency payment freeze applies to mortgages, loans, credit and store cards plus catalogue credit, and will cover a payment holiday as well as reduced payments or increased credit limits.
Most importantly, a freeze means you will not be shown as having missed payments or having built up arrears – things which can damage your credit score.
Additionally, an agreed payment freeze will not be recorded either for the lender or anywhere else in your credit report.
This means that a payment freeze or holiday could help lessen the impact of not working and being unable to pay back agreed payments.
To make sure your credit score is safe, you should:
- Ensure you continue to make regular payments until you have discussed your position with lenders
- Agree with your lender whether you should use a payment freeze, lower payments or raise credit limits
- Agree on the length of the time the special measures should last. It could be up to three months.
- Ensure you have an agreed ‘emergency payment freeze’ with each and every one of your lenders who you may not be able to pay back before missing a payment – which could damage your score.
- Check your credit report and score every month and if you see mistakes or arrears building up during an agreed freeze, contact the lender first. If that does not resolve the situation, contact the CRA.
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