Payment Freeze: How does a payment freeze work? | Personal Finances | Finance

Payday loans are not covered by the payment freeze regime, nor are cars purchased on hire-purchase or under a finance agreement. The Financial Conduct Authority (FCA) said: “We are reviewing these and other types of specialist loans, and plan to announce specific proposals in due course.” Additionally, peer-to-peer lending does not fall under the rules, although the FCA has said it expects loan companies to help troubled customers.

How does a payment freeze work?

A payment freeze or time off is an agreement between a lender and a borrower to suspend regular repayments for a specified period.

On March 17, the government announced that homeowners up to date on their mortgage payments can request a three-month payment freeze.

Arranging a freeze or cut in payments means your account won’t go into arrears, while still giving lenders time to get back on their feet.

On April 2, the FCA proposed a series of temporary measures that lenders could come up with to support borrowers.

These measures included a temporary freeze on loan and credit card payments for struggling Britons.

Christopher Woolard, acting chief executive of the FCA, said at the time: “The changes will provide support to consumers with credit cards, loans and overdrafts facing temporary financial hardship as a result of the pandemic.

“Customers should think carefully before using these measures and only do so if they need immediate help.

“Where they can still afford to continue making payments, they should continue to do so.”

Experian, Equinox and TransUnion have all agreed to an “emergency payment freeze,” with new guidelines that ensure scores are not affected for the agreed length of the payment freeze.

The emergency payment freeze applies to mortgages, loans, credit and store cards, and catalog credit, and will cover payment holiday as well as reduced payments or increased credit limits.

More importantly, a freeze means you won’t be shown to have missed payments or accumulated arrears – things that can damage your credit score.

In addition, an agreed payment freeze will not be recorded for the lender or anywhere else on your credit report.

This means that a payment freeze or vacation could help reduce the impact of not working and the inability to repay agreed payments.

To make sure your credit score is safe, you need to:

  • Make sure you keep making regular payments until you have discussed your position with lenders
  • Agree with your lender whether to freeze payments, reduce payments, or increase credit limits
  • Agree on the duration of the special measures. It can be up to three months.
  • Make sure you have agreed to an “emergency payment freeze” with each of your lenders that you may not be able to repay until you miss a payment, which could hurt your score.
  • Check your credit report and score monthly and if you find any errors or arrears accumulating during an agreed freeze, contact the lender first. If this does not resolve the situation, contact the CRA.

Richard V. Johnson

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