Payment holidays on loans and credit cards

A payment holiday is a short-term pause from your monthly payments, agreed with the lender you owe¹. It is not a gift and it is not a write-off: you still owe everything you did not pay, and interest and charges may keep being added while the break runs². On a loan, your monthly payment rises afterwards to cover the missed payments and the interest charged during the break; on a credit card, your minimum payments rise because of the interest added during that time¹.

The length is set by your lender, not by a single national rule. Guidance for creditors describes a payment holiday as usually one to six months⁴, and one lender's own guidance describes loan payment holidays of up to three months⁵. Some lenders set conditions: one insurer's terms allow up to six months but only two holidays, at least 12 months apart⁶.

The most important thing to understand before you ask is that a payment holiday is not free. Interest continues to be charged during a payment holiday⁷, and taking one will also increase the outstanding balance on which future interest is calculated⁷. If you are already struggling, free and impartial help is available from debt charities and the Money Advice Service, and asking your lender what it can offer is the first step, not the last.

What a payment holiday is

A payment holiday is a short-term pause from your monthly payments¹. It is a temporary arrangement where your creditors may stop interest and charges for a short time, though they are not obliged to⁴. It is not the same as having a debt written off, and it is not the same as Breathing Space, which is a separate scheme and does not write off debt⁸.

You can apply for a payment holiday on a mortgage, a credit card, a loan or a hire purchase agreement³. The emergency payment freeze used during the coronavirus pandemic was wider still, covering mortgages, loans, credit and store cards, plus catalogue credit, and covering a payment holiday as well as reduced payments or increased credit limits⁹. That scheme has closed, but it shows the range of products where a pause has been offered.

A payment holiday is different from simply missing a payment. If you stop paying without an agreement, you fall into arrears and your lender can take action. With a holiday, the pause is agreed in advance, which is why the first step is always to talk to your lender rather than to stop paying.

Payment holidays on personal loans

On a personal loan, a payment holiday pauses your monthly instalments for an agreed period. One lender's guidance describes loan payment holidays of up to three months⁵, while general guidance for creditors puts payment holidays at usually one to six months⁴. The lender decides, and it may set conditions.

Those conditions vary. One lender required borrowers to have made at least one loan repayment, have a direct debit in place, be up to date with repayments and have at least 30 days remaining on the loan term, with repayment holidays standard on personal loans subject to approval⁹. Another lender states that loan payment holidays cannot be taken on consecutive months and are subject to approval¹⁰.

When the holiday ends, your monthly payment to the loan rises to cover the missed payments and the interest charged during the payment break¹. If you can afford to make any payment during the holiday, it helps: one lender says that, as long as you are not in arrears, any payments made during a repayment holiday are treated as additional payments and can reduce the overall interest and term of your loan¹¹. Additional payments you make will not replace your regular monthly repayments once the holiday ends¹¹.

Credit card payment holidays: a temporary pause

A credit card payment holiday is when your provider lets you stop payments for a while². It is temporary, and you may be able to get one if you are behind on payments or going through financial difficulties and have spoken to your provider². As with loans, the creditor does not have to agree¹.

The cost works differently from a loan. Card providers will allow interest to build up while the holiday is in place, and your minimum payments will rise afterwards because of the interest added during that time². You still have to pay the full amount and any interest added during the break². One lender's guidance warns that a payment holiday does not stop interest being charged each month, so you pay more overall¹⁰.

There is one protection worth knowing. A payment holiday is not marked as a missed payment on your credit file². That does not mean there is no record at all: the gap in payments may be marked on your credit file and can make it harder to get credit in future¹. Whether you lose a promotional 0% deal if you take a payment holiday depends on the lender, so it is worth asking before you agree⁸.

Interest and cost: why a payment holiday is not free

The central point about payment holidays is that they defer cost rather than remove it. Interest and charges may still be added during the holiday¹, and interest and charges may continue to be added to your debt³. Taking a payment holiday will also increase the outstanding balance upon which future loan interest charges are calculated⁷.

What that means in practice depends on the product:

• Loans: your monthly payment rises to cover the missed payments and the interest charged during the break¹.
• Credit cards: your minimum payments rise to cover the extra interest that was not paid¹.
• Mortgages: your monthly payment rises to include the missed payments and extra interest, and the new amount depends on how long is left of your mortgage term¹. In most cases, the longer left in the term, the lower the rise in payments¹.

You do have to make up the payments missed during a payment holiday, and these get treated as arrears³. On a mortgage, payments must be caught up before the term ends and interest may be charged¹². Lenders have several ways of handling the catch-up: adding the holiday period onto the end of the existing mortgage term, recalculating the monthly repayment amount, or payment of a lump sum after the holiday¹³.

How to ask your lender for a payment holiday

The process starts with a conversation, not an application form. You need to ask for a payment holiday, but the people you owe do not have to agree to it¹. You may be able to request a credit card payment holiday if you are going through financial difficulties and have spoken to your provider². The provider then makes a decision based on your situation, and it may ask you to provide evidence of your financial difficulty and complete an affordability test².

A few practical points make the process smoother:

1. Contact each lender separately. If you have more than one account with a lender, for example a credit card, loan or mortgage, you will need to arrange a payment holiday for each account, and if you have accounts with different lenders you will also need to speak to each one⁸.
2. Be ready to explain your situation. Lenders ask for information about your circumstances, and for a loan application this typically includes your address, contact details, date of birth, employment details, monthly income and expenses¹⁴.
3. Ask how it will be recorded. Ask your lender whether the holiday will appear on your credit file and whether you will lose any promotional rate⁸.
4. Confirm the terms in writing. Agree the length of the holiday, what happens to interest, and how the missed payments will be collected afterwards.

If you are behind on payments, that is not necessarily a barrier. You may still be able to get a payment break if you are already behind on payments⁶, and you may be able to get a credit card payment holiday if you are behind on payments².

Where a payment holiday may not be offered

Not every debt comes with a payment holiday option, and not every lender offers one. Creditors may agree to a short-term payment holiday, but they do not have to agree¹⁵. What is available varies by product, by lender and by your circumstances.

Some products are a poor fit for a pause. Payday loans are not suitable for large expenses like a holiday, home improvements or Christmas, or for paying off existing debts¹⁶, and they charge higher interest than other types of borrowing¹⁷. If you are considering high-cost credit to bridge a gap, it is worth knowing that credit-builder credit cards can be cheaper than high cost credit like payday loans¹⁸, and that free debt advice is available before you borrow.

Some arrangements that sound like payment holidays are not. Breathing Space is not a payment holiday and does not write off debt¹⁹. A mortgage repayment holiday is generally only available if you have previously overpaid on your monthly mortgage repayments for a certain period, and must be agreed in advance with your lender²⁰. On a Debt Arrangement Scheme in Scotland, you can have up to a six month break from making DPP payments, and a six month break adds a further six months to the DPP end date²¹. If you have a sudden and short-term drop in your income of 50% or more, you may be able to arrange a payment holiday of up to six months under that scheme²².

If you are struggling to repay: other options and free help

A payment holiday is one option among several, and it is worth knowing what else lenders can offer before you commit. Help that creditors may be able to offer includes flexibility with repayment dates, a payment break or payment holiday, an affordable repayment plan based on your budget sheet, or a cheaper alternative if you are struggling to meet the ongoing costs of an essential service²³.

For mortgage borrowers, lenders may allow a temporary mortgage payment holiday, a temporary switch to interest-only payments, or extending the term of the mortgage to reduce your monthly payments²⁵. After redundancy, a lender may allow you to take a payment holiday, consolidate arrears, extend the term, or switch to an interest-only mortgage²⁷. Some lenders will offer payment holidays to give you time to get back on track if you are in mortgage arrears⁶.

If you cannot afford anything at all, you can ask for a payment holiday; if money is tight but not impossible, you might be able to make lower payments for a short period, or ask to pay less for a while longer based on what you can afford¹⁹. For credit card debt, alternatives include a debt consolidation loan, which may be cheaper than relying on your credit card, or finding a credit card with a better deal such as a lower interest rate to transfer your balance to². Other routes for persistent debt include increasing your monthly repayments, repaying the balance using credit with a lower interest rate, cancelling the card and moving the balance to a different one with lower interest, getting a loan you can afford to repay, or shopping around using a price comparison site⁵.

Free and impartial help is available. Debt charities such as StepChange and National Debtline offer free advice, and you can ask for credit card payment holidays and breaks in making mortgage payments¹⁷. If you are dealing with a priority debt, such as your mortgage, rent, council tax or energy, it is worth working out which debts to tackle first¹⁹. If you are on benefits, payments due on a bank holiday are usually paid on the last working day before the holiday, which can affect your budgeting²⁸.