Banks and regulators in talks over extending credit card payment holidays for hard-up borrowers for another three months
- The FCA extended mortgage holidays last week
- Bankers are now in talks with it over doing the same thing for unsecured debts
- There are concerns due to the cost of rolling over more expensive debt
- Taking a three-month payment holiday does not write-off any interest
Credit card and loan borrowers may be able to put their payments on hold until the end of September, under plans reportedly being considered by banks and regulators.
Banks are in discussions with the Financial Conduct Authority over extending three-month credit card and loan repayment holidays initially brought in in April, according to the Financial Times.
The news comes just four days after the FCA brought in measures which meant those struggling to pay their mortgage could put repayments on hold for three more months and had until the end of October to apply for a mortgage holiday.
Some 877,800 credit card borrowers have signed up for three-month payment holidays since they were brought in at the start of April
Both the FCA and banking trade body UK Finance declined to comment, but the regulator’s announcement last week on home loans said the new guidance ‘does not apply to consumer credit products which are covered by separate guidance which will be updated in due course.’
Both the FCA and UK Finance have said homeowners should only roll over their mortgage holidays if they have no other option and should restart their repayments if they can, due to the fact it can cost borrowers more as interest is not written-off.
The regulator previously raised concerns about extending payment holidays for those in trouble with their credit card or loan repayments due to the potential cost of rolling over the interest for another three months, according to The Times.
Borrowers with £4,000 on a credit card with an APR of 21.9 per cent would see £203 in interest added to their balance during a three-month payment holiday, or £270 if the same balance was held on a card with a 29.9 per cent APR.
Alastair Douglas, chief executive of credit comparison site Totally Money, previously told This is Money credit card customers ‘should only really apply for a payment holiday if they need to as a result of coronavirus.
‘This is because interest will be added to the existing amount, which makes the overall debt and future repayments more expensive.’
| Current card balance | APR | Minimum due each month pre-holiday | Minimum due post-holiday | Interest added during holiday | Estimated additional Interest per year |
|---|---|---|---|---|---|
| £1,000 | 18.9% | £25 | £26 | £44 | £10 |
| £1,000 | 21.9% | £27 | £28 | £51 | £14 |
| £1,000 | 29.9% | £32 | £34 | £68 | £22 |
| £4,000 | 18.9% | £98 | £103 | £177 | £42 |
| £4,000 | 21.9% | £107 | £112 | £203 | £56 |
| £4,000 | 29.9% | £128 | £137 | £270 | £89 |
| Source: Barclaycard/Santander | |||||
However, senior bankers have suggested the three-month payment holidays, brought in at the start of April and therefore due to expire next month, be extended, the FT reported.
Some 877,800 credit card customers and another 608,000 loan borrowers were on payment holidays as of 21 May, according to UK Finance.
Figures from the Bank of England revealed households largely shunned credit card borrowing amid the nationwide lockdown in March and April resulting in Britain’s unsecured debt pile shrinking a record £7.5billion.
But there are fears that households could be forced to turn to debt to fund essential spending or struggle to meet existing repayments due to job losses, with the Government slowly switching off the furlough scheme.
The number of people on credit card and loan holidays increased by 26 per cent and 30 per cent between 1 and 21 May respectively.