Tips On Using Loan Repayment Holidays

If you find yourself struggling to pay off your loan in the short-term
because of unforeseen financial difficulties, then perhaps you should
consider taking a repayment holiday. Also, if you are looking to get a loan
and want to know that you can take a short break from repayments if things
are tight, then repayment holidays are probably for you. Here are some tips
about how to use repayment holidays effectively and the consequences of
doing so.

What is a repayment holiday?

Just as it sounds, a repayment holiday is when your lender will allow you to
take a break or holiday from your monthly repayments, thereby helping you to
sort out any financial difficulties that you have. A repayment holiday is
often taken at the beginning of a loan, although many companies also offer
the option to take a holiday at any point during the loan term.

Criteria for repayment holidays

Although not all lenders offer loan repayment holidays, it is becoming a
more common practice. If you want to take a repayment holiday at the
beginning of the loan, then you can usually get a few months break before
you need to start paying the amount back. However, if you want to take a
break later in the loan, this usually cannot be done within the first or
last six months of the loan period. Also, you need to have made a number of
consecutive payments before being allowed to take a repayment holiday. The
length of the break you can have varies, but usually ranges from 1 to 3
months, with not more than 3 months out of any year being taken as a
holiday.

Repayment holiday advantages

The main advantage of taking a repayment holiday is that it allows you to
deal with unexpected financial problems without worrying about paying off
your debts straight away. This can be useful if you are between jobs or have
had an unexpectedly large expenditure for one month. Instead of getting into
more expensive debt on a credit card, you can take a repayment holiday and
just extend the loan period.

The costs of repayment holidays

Although repayment holidays can be very useful, they do come at a price.
When you take a repayment holiday, interest on the loan amount still
accrues. When you start paying again, you will either have to pay the normal
monthly payment for longer and pay the interest at the end, or pay a
slightly higher monthly payment to deal with the extra interest you have
accrued. This means you should only use repayment holidays in a real
emergency. If you are struggling for more than just a month or two, you need
to sort out the problem with your lender rather than take a repayment
holiday. As long as you use repayment holidays sparingly and understand the
costs involved, they can be a great way to keep yourself financial stable
during unexpectedly tough months.

About The Author: Peter Kenny is a writer for The Thrifty Scot, please visit
us at http://www.loanwize.co.uk and http://www.thriftyscot.co.uk/Loans/