Loans and coronavirus

If you’re worried about the impact coronavirus could have on your ability to make loan repayments, read our guide to find out what help is available. We also answer your questions on student loans and whether you can get a loan for your business. 

If you’re worried about the impact coronavirus could have on your ability to make loan repayments, read our guide to find out what help is available. We also answer your questions on student loans and whether you can get a loan for your business. 

Anelda Knoesen
From the Money team
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Posted 4 DECEMBER 2020

Please note: The information in this article was correct at the time of publication on 4 December 2020 but, because of the impact of COVID-19, things are changing rapidly. We aim to keep this page updated, but please check with your loan provider or potential provider directly to confirm any details.

What should I do if I can’t repay my loan because of coronavirus?

If you’ve suffered financially because of COVID-19 and think you’ll struggle to keep up with your loan repayments, contact your lender as soon as you can. You should also contact your mortgage lender if you’re having problems making your mortgage repayments too. They’ll work with you to come up with a solution to best suit your needs.

At the start of the coronavirus lockdown, many financial institutions put in place measures to provide relief to affected customers struggling to pay off personal debts. These included payment holidays and scrapping fees for late payments. The initial three-month period was later extended by a further three months.

The Financial Conduct Authority (FCA) has now confirmed an extension to the window for applying for payment holidays on personal loans, credit cards, car finance, rent-to-own, buy now pay later and pawnbroking loans for people who are having payment difficulties because of coronavirus. Borrowers will have until 31 March 2021 to request an initial or further payment holiday.

  • People who haven’t yet had a payment holiday will be eligible for two payment holidays of up to a total of six months.
  • People who currently have an initial payment holiday will be eligible for another one of up to three months, as long as that doesn’t exceed six months in total.
  • People with high-cost, short-term loans will be eligible for a payment holiday of one month.

If you’ve already had six months of payment holiday, then you won’t be eligible for more, but firms will provide tailored support that may include the option to defer further payments.

Lenders are now expected to:

  • Work with customers coming to the end of a payment holiday to provide support, before they miss payments.
  • Be flexible and use a full range of shorter and longer-term support options to minimise stress and anxiety experienced by customers in financial difficulty.
  • Put in place sustainable repayment arrangements that are affordable and take account of customers’ wider financial situations, including other debts and essential living expenses.
  • Give customers time and opportunity to repay, without pressurising them into doing so within an unreasonably short time period.
  • Prevent customers’ balances from rapidly rising 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.

What are banks doing to help loan customers?

Lenders are still reassuring customers that they’re there to support them through these uncertain times.

If you’ve come to the end of a payment holiday, your lender will get in touch with you to discuss your options. If you’re still having difficulties, make contact with your lender as soon as possible to see what options are available to help you.

If you can restart your payments then you should do so. If you can’t, most banks will ask you to complete an income and expenditure form. This is so they can give you personal advice and discuss what your options are. These can include things like reducing your monthly payments by extending the length of the loan, for example.

How will a payment holiday affect my loan and my credit rating?

If you’re taking a payment holiday, the FCA warns that although the measures are designed to help you, they may result in increased costs over the longer term.

If you already have a payment freeze, your credit file won’t be affected for the period of the payment freeze. But remember that the interest you owe will continue to build, so think carefully before you opt for one of these arrangements. Only do so if you need immediate, temporary financial help.

If you need help from your lender, either at the end of your payment holiday or for the first time, this will be reflected on your credit files in the normal way. This is to help lenders make sure they build an accurate picture of your financial circumstances, to reduce the risk of offering people loans they can’t afford to pay back. The FCA expects firms to clearly explain to you how your credit file could be impacted should you accept the types of support that you’re offered.

If you can afford to make some repayments, even if it’s a smaller amount than usual, you should continue to do so. Don’t just stop making repayments – you need to contact your loan provider to make the request first. It might be easier to get in touch online rather than by phone, but check your lender’s website to see what they suggest.

If you’re also struggling to pay your mortgage, get in touch with your mortgage lender too. The deadline for applying for a mortgage holiday has now been extended until 31 March 2021, so you may be able to access this help.

Will student loan repayments still be taken if I can’t work due to coronavirus?

No, you only make repayments to your student loan when you’re earning over a certain amount, depending on your repayment plan type. That means that if you’re no longer working because of coronavirus, or your income drops below the threshold, your repayments will stop too. This will be done automatically through the tax system.

See Government guidance on student finance and COVID-19

Can I get a loan for my business?

The Government has set out a raft of loans, grants, tax relief and wage support to help businesses through the COVID-19 crisis. This package of measures includes the Coronavirus Business Interruption Loan Scheme.

Small and medium-sized UK businesses with a turnover of no more than £45 million can borrow up to £5 million for up to six years. The loans are interest-free for the first 12 months and the Government will guarantee 80% of the loan amount to give banks the confidence to lend.

Alternatively, small businesses can apply for a Bounce Back Loan for between £2,000 and £50,000 (up to 25% of their turnover), with up to 10 years to pay back what they borrow. Apply to your bank.

Large firms may be able to apply for corporate bonds provided by a lending facility within the Bank of England.

Before applying for a loan, consider whether other initiatives might help, for example:

  • 100% business rates holiday for the 2020/21 tax year for the retail, hospitality and leisure sectors in England.
  • The extended furlough scheme, under which employees get 80% of their salary for hours not worked up to a maximum of £2,500.

Find out more about Government support for businesses.

Should I take out a payday loan?

There are many pitfalls associated with this type of loan. Interest rates are very high, and costs can soon spiral out of control if you find you can’t repay the loan on time and in full.

Are there any coronavirus loan scams to watch out for?

Fraudsters are taking advantage of the coronavirus outbreak to scam people out of money. Be wary of anyone contacting you pretending to be from your bank offering financial help like payment holidays on loans as a way of getting you to reveal your account details.

Banks will never ask you for your full PIN, password or card reader codes. Always check any calls and emails you receive are from legitimate sources and don’t give out any personal information.

Find out how to avoid coronavirus scams.

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