Such courtesy of the lender is agreed in advance, at the moment of drawing up the loan.
Full and part time credit holidays
There are mainly two types of credit holidays in financial institutions: full and incomplete.
Partial Credit Vacation
This is the period during which the borrower may default on his or her pre-existing long-term loan, and such “pause” must be agreed in advance with the bank or non-bank lender. To arrange a credit vacation, the borrower will have to contact their lender’s representative and tell them what happened to him: why he is no longer able to pay back the loan on time. Upon receiving this information, the lender will want to know what you will be doing during your credit vacation and what steps you intend to take to improve your credit standing.
Part-time credit breaks do not allow you to completely waive the loan repayment, but only the principal repayment . In other words, you will only pay the annual rate, but the principal amount of the loan will remain earlier. If possible, you will also be able to pay more than the annual commission rate, thus slightly reducing the total debt.
Full credit vacation
This is the time period during which you will be completely exempt from credit repayment for one or more months . But getting such a courtesy from a bank is quite difficult. There must be very good reasons and grounds: only then will the bank be able to offer its borrower such a privilege.
Usually, at the end of the credit holiday, the loan payments will be significantly increased because the borrower will soon have to make payments that he did not make during the holiday period. This is due to the fact that the bank does not intend to change the long-term loan repayment schedule because the borrower has not applied for refinancing but has only asked for some loan payments to be deferred. Therefore, when planning a credit vacation, be prepared for the fact that it will be even more difficult to repay the loan after the holidays.
When repaying a long-term loan, a credit vacation is usually executed in the event of a borrower losing his job, expecting a baby or having an accident that has had serious financial consequences.
If you are in any of the three situations listed above, you should always contact your credit institution to inform them of the accident or new circumstances in your life. When talking to your financial organization or bank, try to find a common alternative solution that will satisfy both you and your credit institution.
But in the financial world, there is another practice that applies to credit repayment, or more specifically, credit vacations, but it is used only to qualify for instant credit and is called “extension fee”. With such a service, a borrower in financial difficulties can pay a certain amount of money to change the date of loan repayment (extension). For example, such an extension can be ordered for 7, 14 or 30 days. During this time, the borrower will need to find or earn the required amount of money and make a loan payment.
Features and characteristics of a credit holiday
Financial experts say the credit break will only help the borrower to settle his financial situation if the bank’s client’s ability to pay has fallen for only one month, and he is confident that he will be able to make a regular payment in the next billing period. If you have trouble answering when your income level will be stable and sufficient to pay off your loan, then it is better to go to the bank after debt restructuring. This is a free procedure that allows you to significantly reduce your monthly payment by increasing the loan repayment term.
The most popular seasons when borrowers want to get a credit vacation are New Year’s Eve and the summer vacation season. During this time, bank customers are most concerned about their rest, so they try to postpone their loan repayments and related costs to at least the next month.
What do clients expect after a credit vacation?
We have already told you that the outstanding payments that you will be relieved by your bank during your credit vacation will not go away and will have to be repaid as soon as you make increased credit payments. But even if you pay a small commission on the credit holiday itself and then start to “catch” your debts, it will be much more profitable and cheaper than fines for late payments. Along with the negative financial consequences, the borrower will also have a damaged reputation in the form of bad credit history.
Similarly, the borrower must be prepared that the bank may refuse to provide credit breaks if this condition is not initially stipulated in the credit agreement. In order to make such a financial pause, the borrower will in any case have to gather documentary evidence that he is currently in a difficult financial situation. The Bank, for its part, has the right to examine the documents submitted and to decide that the borrower’s situation is not so critical as to require a credit vacation.
Very rarely, a credit vacation can change the repayment period of a loan, which leads to a higher interest rate and, consequently, a rise in the cost of the loan.
If the borrower’s position in critical situations is understandable to us (he is looking for a postponement of the loan repayment date) then the bank’s position is: it tries not to deviate from the scheduled repayment schedule. This means that the creditor makes every effort to obtain a stable and impeccable income, so any bank or other credit organization will not obstruct alternative solutions that will help the borrower overcome short-term difficulties and fully repay the debt.
What to do to the borrower if his solvency decreases
First of all, the borrower should not hesitate to find a way out of the situation, but to rush to the bank or credit institution to inform the lender of his difficulties. Financial experts have long begun to recommend all borrowers repaying their long-term loans to build small financial reserves to help them not complete their credit breaks, but to repay their monthly payments without problems for several months.
If you have no other avenues to go and you still decide to arrange a credit vacation, ask your creditor how this “break” will be evaluated. Unless a credit vacation is considered a late repayment, your credit history will not be damaged, but there will still be evidence that you have had difficulty repaying the loan. If the creditor, from his own point of view, initially considers credit delay as a delay , this will have a negative impact on the borrower’s credit history in the future.