Many banks in South Africa are now offering payment holidays. Standard Bank, FNB and Absa to name a few. This has been put in place to allow consumers that are low on cash during these uncertain times to have a break from their debt payments.
Many South Africans are sadly without an income during the nationwide lockdown, so this payment holiday can come as a relief to them. It will protect them from being blacklisted or having a negative impact on their credit score. They will be able to have peace of mind while still being able to pay for food and necessities. Is the payment holiday a good idea for you?
Ts and Cs
You always need to remember to read the terms and conditions and a payment holiday is no different. Each bank will have their own Ts and Cs, so you need to double check what you are getting into. They most likely will be extending the term of your repayments. For example, if you were paying your debts over 12 months you may now be paying your debts over 15 months and therefore the interest will also be paid over a longer period. But this could be different for each bank as one bank could lower the interest rate and one could not.
You need to read what you are getting into before making any decisions on a payment holiday. If you are still able to pay off your debts during this time, then do so.
Interest
The income of both the consumer and employers will be strapped in the coming months and possibly years to come. The first thing one should think of when making any decisions about debt is the interest rate. Before you decide on taking a payment holiday you must take note of how it will affect your interest rate.
Read the terms and conditions and check if interest still occurs on your repayments during the payment holiday. If it does, this means your debt will become more expensive. Although, this may be the more desirable option rather than missing a payment you cannot afford.
There are many pros and cons to each option, but it all comes down to affordability. Make the repayments if you can and avoid extra interest and paying more for your debt. But if you simply cannot afford to do so then a payment holiday may be the way.
Do I need it
There is a big difference between having a short-term cash flow problem and being overindebted. If you have a cash flow problem due to the lockdown and the problem will be solved once the lockdown has ended, then the payment holiday can be for you. This is doing it for the right reasons and means you can afford to make repayments but not at the current time.
If you have had a problem paying off your debts in the long term and are over indebted then taking out a payment holiday would be for the wrong reasons. If you haven’t been able to pay off your debts in the past, then there is no reason why you would be able to make full repayments once the payment holiday has ended. A better option would be to go under debt review. This way you can reduce your monthly installments by up to 50%. You will be able to work out an affordable repayment plan with your debt counsellor and put yourself on the right path to financial freedom. This way you won’t be safe for 3 months and then have even more debt to pay off once the payment holiday is over, you will be fixing your debt problem.
The bottom line
Taking a payment holiday is a good idea for some and a bad idea for others. You need to be honest with yourself, your habits and your finances and decide if taking it is a good idea for yourself. Use all the information given to decide if you are taking the payment holiday for the right reasons and if it will better your financial situation or worsen it.
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