What is a payment holiday?
A payment holiday is an agreement you might be able to make with your credit provider allowing you to temporarily stop or reduce your monthly repayments.
Standard Bank has taken the initiative to make a payment holiday option available to their clients. Thereafter, ABSA, FNB and Nedbank followed suit. A payment holiday is only available to qualifying consumers in an endeavour to ease the economic impact of the COVID-19 pandemic.
Who should qualify for a payment holiday?
This is the big question as some consumers are already overindebted and can ill afford their current monthly repayments.
All the major banks have their own policies in place. However, at the very least, you as the consumer should be in good standing with your credit provider to qualify for a payment holiday.
What are the consequences of a payment holiday?
The one, two or three months that you do not make any payments are added to your outstanding balance, inevitably increasing your outstanding balance. Your monthly instalment is then recalculated over the remaining period of your loan, thus increasing your monthly instalments as well as extending your loan period and at the same time, interest continues to run against your loan account.
Consumers must be very careful not to commit an act of insolvency when:
- Admitting that you owe a credit provider and put an offer of settlement forward requesting the credit provider to write off a certain amount;
- Admitting in writing of your inability to pay the debt; and
- Not satisfying a judgment order brought against you.
In terms of Section 8 of the Insolvency Act, 24 of 1936 these actions may allow a credit provider to proceed with liquidation/sequestration/business rescue action against you.
Is a payment holiday a good thing?
If you can still manage to pay your monthly instalments, it is best for you to continue to do so instead of opting for a payment holiday. Remember, nothing is for free!
What is credit life insurance?
Credit life insurance acts as security which consumers take out with a loan in the event of death, disability, mental illness, unemployment or other insurable risk that is likely to impair their ability to earn an income or pay monthly instalment under a credit agreement.
Due to ignorance, these benefits were hardly ever claimed by consumers but over the past couple of days things have changed and credit providers are inundated with queries by consumers regarding their benefits under the credit life cover.
Who qualifies for credit life insurance?
Self-employed people and pensioners do not qualify and, in some cases, contract workers do not either. Please see the related article of our Madeleen Charsley by clicking on the following the link: https://www.blcattorneys.co.za/articles/covid-19-economic-aftermath/
Author: Zelda Damons