Temporary loan repayment plans: costs and risks

How to ask for temporary payment support, build an affordable offer and check interest and credit-file consequences.

What is a temporary repayment plan?

A temporary arrangement can reduce or defer payments while you are in financial difficulty. Contact the lender before a payment is missed if possible, explain your circumstances and ask for an affordable arrangement. Confirm the duration, review date, interest, charges and credit-file reporting in writing.

Interest rates and temporary repayment plans

For regulated consumer credit, lenders must treat customers in or approaching arrears with forbearance and consider their individual circumstances. Where a forbearance repayment arrangement is in place and you meet it, FCA rules require further interest or charges to be reduced, waived or cancelled as needed to stop the balance rising during the arrangement.

This is not an automatic waiver of every existing charge. Ask for a clear explanation of the agreed terms. See FCA CONC 7.3.

What are the pros of a temporary repayment plan?

An affordable arrangement may leave more room for essentials and priority bills. It can provide time to stabilise your finances, but it does not guarantee higher income, a full interest freeze or protection against every form of legal action.

Are there risks with a temporary repayment plan?

You should be aware of certain things when you get a temporary repayment plan.

First of all, your loan company doesn’t have to agree to your repayment plan at all. This is something you’ll want to avoid where possible.

Secondly, your credit file will be altered to show you had to take out the repayment plan. It can hurt your credit score and may make it harder for you to take out credit in the future. Missed payments, defaults and partial settlements can leave a mark on your credit report for six years.

Finally, you need to make sure you make the revised payments. If you don’t, your credit score could take a dive, and you will still need to pay back everything.

Real life stories:

Its total ripoff. Asked Moorcroft agent to change my payment plan date to the end of the month as i wont be able to make any payment towards the beginning of the month. They have attempted it twice this month to take money out of my account and my account is in minus now. Seriously !!!!

Sachin Sugathan – Consumer Action Group

So how do I actually set it up?

Prepare a realistic budget covering income, essential living costs and priority bills such as housing, council tax and energy. Do not offer your whole income to one loan company. Work out what remains for all non-priority creditors and seek free debt advice if there is not enough.

Send the lender your budget and a proposal you can sustain. Ask it to confirm what is agreed, how interest and charges will be handled, and when the arrangement will be reviewed.

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Setting up multiple payment plans

Treat non-priority creditors fairly. Offers are commonly divided proportionately to the balances owed, rather than giving every creditor the same cash amount. A free debt adviser can help calculate offers and identify priority debts that need separate treatment.

So what happens if I can’t make my loan payments still?

If you still can’t pay, speak to your loan companies immediately. Explain the situation and give them a compelling reason why you can’t pay the revised payments. From my experience, this can have a negative impact on your finances, and you may have to default on your payments.

This will impact your credit score and make it difficult for you to get credit in the future. You could even be issued a County Court Judgement (CCJ) and legally forced to repay your debt.

Is a temporary repayment plan the best choice for a loan?

The temporarily reduced payments could give you the chance to get back on your feet. It is essential that you know how much you have in the bank and how much you can actually pay. You need to be sure you can pay the new payments. Otherwise, you could risk falling further into debt and lowering your credit score.