One way many are trying to see it through until economic activities start picking up again, has been to ask their bank, landlord or other lender for a so-called payment holiday. The aim is to help ease the financial pressures experienced during the pandemic, whether on their business or due to their working circumstances having changed.

The intention of the payment holiday is to allow the consumer's profile to remain "static" during the period of the payment holiday. This means that the payment holiday data submitted to and held by credit bureaus will not be recorded as a "negative event" on your credit profile. Instead, it is displayed as a "normal" status code and not as a negative status code.

There are actually two types of payment holidays, explains Annelene Dippenaar, chief legal and compliance officer at credit data company Experian Africa.

She says most banks have introduced payment holidays for consumers and small and medium businesses experiencing challenges that meet the specific banks' applicable criteria.  

One option is to delay the payment date of your next instalment, while the other option is to extend the terms of the agreement and pay back the loan over a longer period.

Credit profile

"If you meet your revised obligations under the payment holiday, it should not result in a build-up of missed payments on your credit report. Your credit score will not be affected negatively because your months in arrears will remain static until the time that the delayed amount becomes due and payable," explains Dippenaar.

She points out that, while the payment status of your accounts is important, other factors are taken into account to calculate credit scores. These include total unsecured debt (credit cards and personal loans) and what the total use of your credit is - in other words how much of your credit you are using.

Dippenaar says there is no guarantee that having used a payment holiday will not impact your ability to get credit in future.

"Lending policies differ between the various financial service providers, so this will depend on the lender with whom you apply for credit in the future," she says.

"It is also important to recognise that, just because your lender has announced a payment holiday, it does not automatically mean a payment holiday has been granted to you. You need to formally apply with your lender."

She suggests that one tries to continue to make regular payments as best as you can until you have discussed your situation with your lender or lenders. This is because, if you simply pause on payments, it will be seen as a negative event on your credit profile.

"If you think you're going to struggle to make payments due to the knock-on economic effects of the pandemic, speak to your lender as soon as you can. If you are in financial difficulty, contact a debt counsellor who can help you," suggests Dippenaar.

In her view, having a budget is key, especially when an emergency occurs. An important step in managing your budget is identifying your income and expenses.
 
"If you're considering taking out credit to help you cope during the Covid-19 pandemic, you must consider all your financial options first. You should only borrow what you can afford to repay... and start to review your options sooner rather than later," says Dippenaar.

"If you are unable to meet your current credit obligations due to loss of income, determine whether your current insurance policies include protection that can be used to settle your outstanding debts."

* Compiled by Carin Smith

Fin24