Car finance and high-cost credit payment holidays extended

The Financial Conduct Authority (FCA) published draft guidance earlier this month, with proposals that customers who've already taken up support and are still experiencing payment difficulties should be offered a further payment holiday or payment reduction for the next three months, while those who've yet to request a holiday have until 31 October 2020 to apply for one.

In April, the FCA also told payday loan firms to give struggling customers a one-month interest-free payment holiday. It has now confirmed that payday loan customers who are still facing difficulties should be offered support in accordance with the usual rules on forbearance – but has stopped short of offering a new payment holiday or other specific measures as a result of the pandemic.

The measures proposed have now been confirmed after a brief consultation and will come into force from Friday (17 July).

See our Coronavirus Finance & Bills Help guide for more info on the help available when paying bills and debts during the coronavirus pandemic.

What further help will those with car finance get?

Car finance lenders may offer help over and above what's required by the FCA. Here are the rules the regulator has put in place as a minimum:

• Customers who've already taken a payment holiday should be offered an extension of up to three months if they're still struggling due to coronavirus. Lenders can also offer to reduce payments to an affordable level for up to three months as an alternative. Lenders must contact customers at the end of their first payment holiday to find out if they can resume payments. However, any extension won't be automatic, so you'll need to ask for it if you need it.

  Interest will continue to accrue on loans during any payment holiday, and in some cases the interest rate can be hefty – so only consider doing this if you really need it.

  As is already the case, it'll be up to individual firms to decide whether your loan's term will be extended as a result of a payment holiday, or if it'll ask you to make higher payments once you start paying again. So make sure you check all the implications of taking a payment holiday before you make any decisions.

• Customers who've not yet requested a payment holiday have a further three months to ask for one. So you must request one by 31 October 2020.

• Lenders now shouldn't be able to repossess a vehicle if a customer's struggling due to coronavirus until 31 October 2020. This measure is already in place for car finance customers who are facing temporary payment difficulties as a result of coronavirus and need their vehicles – the FCA has now extended it by three months.

What further help will payday loan customers get?

In April, payday loan firms were required to offer struggling customers a one-month payment holiday – and unlike the payment holidays offered to car finance and other high-cost credit customers, this was interest-free.

However, the FCA hasn't announced any further payment holidays or other specific measures to help those with payday loans in its latest announcement. The regulator said that if customers are experiencing difficulties, payday lenders "should be providing a range of support – including formal forbearance – in accordance with the FCA Handbook".

What further help will those with other high-cost credit get?

The FCA has confirmed new measures to help those with other high-cost credit agreements who are still struggling due to coronavirus, including:

• Buy-now-pay-later customers. If you've already had a payment holiday, you should be able to extend it by up to three months, or reduce payments over that period. If you've not had a payment holiday, you have until 31 October 2020 to request one.

  Where a buy-now-pay-later loan is within a promotional period, this would involve getting an additional extension to that period. However, if interest is being charged it would continue to accrue during the payment holiday – so you'd need to weigh up carefully whether you really need to freeze payments.

• Rent-to-own customers. If you've already had a payment holiday, you should be able to extend it by up to three months, or reduce payments over that period. If you've not had a payment holiday already, you're able to request one until 31 October 2020. However, interest would continue to rack up during the holiday, so you should only consider this if you really need it.

  Lenders aren't able to repossess items if you're facing temporary payment difficulties due to coronavirus and you need the goods you're renting. This repossession ban's due to expire on 31 October 2020.

• Pawnbroking customers. Again, if you've already had a payment holiday, you can extend it by up to three months, or reduce payments over that period.

  If you're still within the time you're able to buy back the item pawned, your pawnbroker needs to extend that time for up to three months. It also won't be able to sell the item if the redemption period has already finished if you're on a payment holiday.

Who's eligible for a payment holiday and will it affect credit files?

These rules only apply to customers whose financial difficulties have been caused by the coronavirus pandemic. You'll also need to ask for help – payment holidays and payment holiday extensions won't be automatic.

If you're already struggling financially for unrelated reasons, you could be offered other forms of 'forbearance' (tolerance and help) under existing rules – which could include reducing or cancelling interest charges, or delaying the payment of arrears.

Firms won't be expected to investigate why you're asking for a payment holiday or payment holiday extension, though they could decide not to give you one if this would clearly be against your interests.

If you're already on a payment holiday, your lender should contact you before it ends to see if you can start paying again. However, if you don't ask for an extension, or if you don't respond to the lender at all, it can assume that you're able to resume full payments from the next month and report a missed payment to the credit reference agencies if you don't pay again that month, so it's important to get in touch.

If you have been granted a payment holiday or payment reduction, this won't result in missed payments and defaults being reported on your credit file. But lenders can often use bank statements or Open Banking data to see that you've taken a payment holiday, and they are allowed to use that information as part of their credit checking process if you apply for new credit in future.

What does the FCA say?

Christopher Woolard, interim chief executive at the FCA, said: "Our measures will ensure that people who are still facing temporary payment difficulties because of this pandemic continue to have access to the help they need. However, if you can afford to start making repayments, you should."