Loans, credit cards and overdrafts
Of course, mortgages aren't the only kind of loan agreements people are worried about during the lockdown. While you won't be seeing any drop in your credit card interest rates after the Bank of England's rate change, some providers are starting to become slightly more flexible in their terms. Depending on which cards you have, you might be able to get emergency raises to your credit limits, repayment holidays or cancelled penalty fees if you miss a payment date. If you've got loans you're worried about paying off, it's definitely worth sending up a distress flare to your lender. You might find them willing to relax their rules a little, as long as you talk to them in advance.
While most banks have recently bumped their overdraft rates up to 40% after a change in the rules, the move actually results in most people paying less than they were before. People with unarranged overdrafts are getting the worst of it, though, with their fees skyrocketing in many cases. However, the ongoing crisis has got the banks reaching out to people with overdraft problems. Some are upping their interest-free limits, at least temporarily, while at least one has committed to ditching all charges for agreed overdrafts for a limited period. There are still some decisions being made by the banks here, so check with yours to see what help they can offer.
As of April 2020, some more help came from the Financial Conduct Authority (FCA) in the shape of a new set of rules designed to protect people during the COVID-19 crisis. Under these rules, borrowers are entitled to:
- Be charged no more than they would have paid before the recent overdraft rules changes came in.
- A freeze of up to 3 months on loan and credit card repayments.
- Keep their credit ratings undamaged if they have to use any of the temporary payment freezes on offer.
It’s important to remember that a payment freeze isn’t the same as getting free money. Even though you might be able to get a payment holiday, the debt you’ve run up will still be gathering interest as normal, meaning you’ll end up paying more overall. Depending on your situation, taking up the payment freeze offer might just mean storing up bigger problems down the road.
For people with overdrafts whose finances have taken a hit from the pandemic, there’s some more support on offer. If they already have an arranged overdraft on their main current account, up to £500 of it can be set to 0% interest for 3 months. As mentioned above, the overdraft rules were recently changed to ban daily fees, with most banks raising their overdraft rates to 40% in response. As a result, this move could be a big help to many people.
If you’ve already got a 0% credit card arrangement, it’s pretty common for a missed payment to see it killed off and interest charges kicking in. Under the new rules, though, you’ll be able to keep your 0% entitlement when you decide to take a payment holiday.
Of course, not every loan or credit arrangement is the same, and not all will be affected by these new protections. We’ve already had clarifications from the FCA that the rules cover home collected credit, logbook and guarantor loans, loans from community development finance institutions and certain credit unions, as long as they’re regulated. Payday loans, however, are exempt , as are various other short-term credit deals. The same goes for car finance plans, so watch out and be sure you know exactly where you stand.
Obviously, not everyone will be able to benefit automatically from the FCA’s decisions – and some banks may actually be doing more than the basic minimum they’re required to. In most cases, you’ll have to ask for help to get it, so the main thing to do is talk to your lender if you’re running into trouble. Once you get a clear picture of exactly what they can do to help, you’ll be in a much better position to make good decisions.
It’s expected that all these new rules will be in full effect by the 14th of April. There are still some announcements on the way, though – including one specifically about car finance, so keep checking back for the latest updates.