A loan repayment holiday lets you pause your monthly payments for an agreed period. This article explains how they work, what they cost, and what happens to your credit file.
This article is information only. It does not constitute financial advice and does not account for your personal circumstances. If you are in financial difficulty, speaking to a free, independent debt adviser is a useful first step.
What is a loan repayment holiday?
A loan repayment holiday is a formal arrangement between you and your lender to pause your monthly payments, usually for one to three months. The loan does not disappear. Interest typically continues to accrue on your outstanding balance during the pause, which means the total amount you owe is likely to be slightly higher when repayments resume.
In plain English: you are not being let off the payments. You are moving them to later in the loan, and the extra interest gets added on.
How does a repayment holiday work?
When you contact your lender and they agree to a holiday, they will usually extend your loan term by the number of months you have paused, add the accrued interest to the remaining balance, or adjust your remaining monthly payments upward. Sometimes all three.
The exact mechanics depend on the lender and the type of loan. A simple example helps here.
Say you owe £3,000 on a personal loan at 10% APR, with 24 monthly payments remaining. If you take a two-month holiday, interest continues to build on the £3,000 for those two months. When you resume, you may owe slightly more than £3,000 and may face slightly higher monthly payments or two extra months of repayments.
It is worth asking your lender for a written summary of the revised repayment schedule before agreeing to anything.
When does a repayment holiday make sense?
A repayment holiday is one option when money is temporarily tight. It can provide a short breathing space if you are facing a one-off shock, such as a job change, a large unexpected bill, or a short period of reduced income.
The key word is temporary. If your financial difficulty is ongoing, a two-month pause is unlikely to resolve the underlying problem. In that situation, free debt advice is likely to be more useful than a holiday.
A repayment holiday may be worth considering if:
- You have a short-term reason for reduced income that you expect to resolve.
- You have spoken to your lender and confirmed the credit file implications (see below).
- You have a clear picture of how much extra interest the pause will cost overall.
- You have looked at alternatives (see below) and a holiday is still the most suitable option for your circumstances.
What are the Consumer Duty implications?
The FCA's Consumer Duty rules, which came into force in July 2023, require lenders to act in the genuine interest of retail customers. That includes customers in financial difficulty.
Under these rules, lenders are expected to offer forbearance options to customers who are struggling. They are not simply allowed to refuse and move on. If you tell your lender you are in financial hardship and ask for support, they are expected to engage with you properly and consider what help they can offer.
That does not mean every lender will offer a repayment holiday specifically. They may instead offer a reduced payment plan, a temporary rate reduction, or another arrangement. The important bit is that you have the right to ask, and the lender has an obligation to consider your situation fairly.
If you feel a lender has not treated you fairly, you can complain to the lender first, and then to the Financial Ombudsman Service if you remain unhappy.
Warnings: what to check before agreeing to a repayment holiday
Interest still accrues. This is the most common surprise. Most personal loan agreements specify that interest continues during a payment pause. Check your agreement or ask your lender directly.
Your loan term is likely to extend. Taking a three-month holiday does not save you three months of payments overall. It typically adds them to the end, sometimes with additional interest.
The total cost of your loan will increase. Even a small amount of extra accrued interest adds to the total amount repayable. For larger loans with higher rates, this can be meaningful over time.
Your credit file may or may not be affected. This depends on how the lender records the arrangement. If the holiday is formally agreed and properly coded by the lender, it should not appear as a missed payment. However, some lenders record a note on your file. Always ask in writing: "How will this arrangement be recorded on my credit file?" and keep the response.
Affordability checks on future credit could be affected. Even without a negative marker, some lenders may see a payment holiday note during an affordability assessment and factor it in. This is worth bearing in mind if you expect to apply for new credit soon.
What are the alternatives to a repayment holiday?
Before agreeing to a holiday, it is worth knowing what else might be available.
Reduced payment arrangement. Rather than pausing entirely, some lenders will agree to temporarily lower your payment. This keeps your account active and limits extra interest.
Loan restructuring. Your lender may be willing to extend the loan term formally, spreading remaining payments over a longer period to lower each monthly amount.
Debt management plan (DMP). If you have multiple debts, a DMP through a free debt adviser can consolidate your payments into one affordable monthly sum, with the adviser negotiating on your behalf with creditors.
Free debt advice. If your finances feel unmanageable overall, rather than applying a short-term patch, getting proper advice from a specialist is often the most effective step.
Where to get free debt help
If you are in financial difficulty, free, confidential support is available:
- StepChange Debt Charity, 0800 138 1111 (free helpline) or stepchange.org
- National Debtline, 0808 808 4000 (free helpline) or nationaldebtline.org
- MoneyHelper, 0800 138 7777 (free helpline) or moneyhelper.org.uk
These organisations can help you review your full financial picture and explore all the options available to you, including arrangements with lenders that you might not be aware of.
Frequently asked questions
Will a repayment holiday hurt my credit score? If your lender has formally agreed to the holiday and marks your account correctly, it should not add a missed payment marker to your credit file. It is worth asking your lender in writing exactly how they will record it before you agree, and checking your credit file afterwards.
Do I still pay interest during a repayment holiday? Usually, yes. Interest typically continues to build on the outstanding balance throughout the pause. That means your total debt is likely to be higher at the end of the holiday than at the start, and your remaining payments may increase slightly.
How long can a repayment holiday last? The length varies by lender and your circumstances. One to three months is common, though some lenders may agree to longer in cases of serious hardship. There is no universal legal minimum or maximum, it depends on what your lender offers.
Can any lender refuse a repayment holiday? Yes. Lenders are not legally required to grant one except in specific regulated circumstances. Under FCA Consumer Duty rules, lenders must treat customers in financial difficulty fairly, but that does not mean automatic approval. Contacting your lender early gives you the best chance of agreeing something.
What if my lender says no? If a lender declines, free debt advisers at StepChange or National Debtline can help you explore other options, including debt management plans or negotiating reduced payments. You may also have rights under the FCA's consumer credit rules.
Is a repayment holiday the same as a payment deferral? They are closely related terms and are often used interchangeably. Both mean pausing payments for a set period. Some lenders use "deferral" to describe a formal arrangement, and "holiday" as a broader term. Always confirm the exact terms and conditions with your lender.
Sources and further reading
- FCA, Consumer Duty guidance and consumer credit rules: fca.org.uk
- MoneyHelper, Payment holidays and financial difficulty guidance: moneyhelper.org.uk
- StepChange Debt Charity, Debt advice and support: stepchange.org
Related reading
For a broader look at how personal loan costs and repayment work, the Personal loans guide covers the full picture, from applying for a loan to understanding what you will repay overall.
- Will a repayment holiday hurt my credit score?
If your lender has formally agreed to the holiday and marks your account correctly, it should not add a missed payment marker to your credit file. It is worth asking your lender in writing exactly how they will record it before you agree, and checking your credit file afterwards.
- Do I still pay interest during a repayment holiday?
Usually, yes. Interest typically continues to build on the outstanding balance throughout the pause. That means your total debt is likely to be higher at the end of the holiday than at the start, and your remaining payments may increase slightly.
- How long can a repayment holiday last?
The length varies by lender and your circumstances. One to three months is common, though some lenders may agree to longer in cases of serious hardship. There is no universal legal minimum or maximum — it depends on what your lender offers.
- Can any lender refuse a repayment holiday?
Yes. Lenders are not legally required to grant one except in specific regulated circumstances. Under FCA Consumer Duty rules, lenders must treat customers in financial difficulty fairly, but that does not mean automatic approval. Contacting your lender early gives you the best chance of agreeing something.
- What if my lender says no?
If a lender declines, free debt advisers at StepChange or National Debtline can help you explore other options, including debt management plans or negotiating reduced payments. You may also have rights under the FCA's consumer credit rules.
- Is a repayment holiday the same as a payment deferral?
They are closely related terms and are often used interchangeably. Both mean pausing payments for a set period. Some lenders use 'deferral' to describe a formal arrangement, and 'holiday' as a broader term. Always confirm the exact terms and conditions with your lender.