This morning a new set of rules for credit card and loan providers were laid out by the the city watchdog – but while it looks like good news for customers, Martin Lewis has told people to be very careful.
To help those struggling with their finances as a result of coronavirus, the city regulator announced a payment break for credit card and loan customers in April.
People were told they would be allowed to stop making payments for three months and banks and building societies weren’t allowed to put a black mark on their credit report for doing it.
They proved popular – with 961,700 payment deferrals on credit cards and 688,900 payment deferrals on personal loans made by banks.
But with the three-months almost up, and coronavirus still wreaking havoc with people’s finances, a new set of rules was unveiled this morning.
On the surface, it’s good news – with payment holidays set to be extended until October 31 and new partial payment plans introduced as well – but financial expert Martin Lewis has warned people to be very careful about taking them up.
“A payment holiday is when you don’t have to pay, but the interest does still rack up – and you will have to make that up later,” the MoneySavingExpert.com founder explained to people in a video message.
There was also a gap in the promise that it wouldn’t affect your credit rating.
“As always, this won’t go on your credit file – but you shouldn’t take that as surety that it won’t affect your future creditworthiness,” Martin said.
“By use of open banking or studying your payment history future lenders are able to effectively spot that you have taken a payment holiday – and it is not against the rules for them to incorporate that when they’re looking at your application for future credit, including mortgages.”
But he added that it should hopefully only have a small impact.
“I don’t think if you just take the standard payment holiday then move on afterwards it’ll have too much of an impact, but it could have a small impact if you’re on the brink,” Martin said.
However, he still advised caution as a result.
“If you combine that with the fact that all you’re doing is deferring payment and interest is racking up – and interest on these products can be very high unless you’re on a 0% deal – then generally my rule is: ‘Only do this if needed, and if you can take a partial payment holiday not a full payment holiday because you can afford to repay some, then do that.”
He also pointed out that new rules are currently only proposals – with banks having until 5pm on Monday to respond – but added that in the past they’ve almost always been put into force unchanged about 10 days after being announced.