After the holiday season, our funds are heavily depleted, and in some cases the household budget is very bad. Is it worth taking a loan holiday in such a situation?
Credit holidays seem to be a good solution for many consumers to repair their home budget. The problem, however, is the lack of understanding of the mechanisms of action of the so-called credit holidays. Many bank customers treat them as a temporary suspension of loan repayment. A large proportion of consumers believe that credit holidays involve exempting the debtor from paying several installments. When deciding on such suspension of repayment, it is worth checking what type of vacation we can count on – can we suspend the repayment of the entire installment or only its capital part. It is also worth realizing that in many banks, the same name may hide various activities that the borrower can do.
Holidays or grace?
We can suspend repayment installments in two ways – by means of a grace period in repayment of capital and by means of credit holidays. A grace period in capital repayment occurs at the time the loan is taken and consists in suspending the repayment of principal installments for a specified number of months. In most banks, it is mandatory until all the loan has been paid out. Therefore, it will be used on the primary market or with a loan for house construction until the last installment is paid. It is only when the entire loan is released that we can start paying it back, and therefore, in addition to paying interest, also the borrowed capital. In banks that use such a grace period, it is not possible to start paying off the loan earlier, even if the borrower would like to take advantage of this option. In some banks, at the borrower’s request, an additional grace period may be applied to the repayment of capital also on the secondary market or on the primary market after the entire loan has been released. However, this type of solution can be used for a maximum of 6-12 months. A grace period should not be used if it is not really necessary. Deferring the loan repayment increases interest costs. In this way, our loan will become more expensive.
Vacation for loan repayments
Borrowers who have been repaying their liabilities for several years may also benefit from suspension of repayment of part or all of the loan. In this case, such suspension is called credit holidays in banks, although the solutions used sometimes resemble a grace period that can be used when taking a loan. In the case of credit holidays, two solutions are possible – suspension of repayment of the entire installment or only the capital part. The first solution means that we don’t have to pay anything to the bank for a certain period of time, while in the event of capital suspension only interest is repaid. The possibility and principles of taking advantage of credit holidays are specified in the loan agreement or loan regulations. There we will find information after which time after the loan payment we can take the holidays (usually a minimum of 12 months from the loan disbursement), with what frequency we can suspend repayment installments and for how many months we can take the holidays. However, it is worth being aware that only those borrowers who pay repayments on time can suspend repayment. This is not a solution for people who are already overdue. In addition, in order not to pay the nearest installment, you must notify the bank about your desire to take advantage of credit holidays well in advance, most often it is at least 7-14 days before the installment payment date.
You have to pay for the holiday
Both grace period and holiday credit are a good way to prevent temporary problems with closing your home budget. However, please note that no solution exempts us from paying your loan installments. Banks use two options to settle accounts receivable for the period in which we did not pay the installments. They can calculate the amount of installments that we have not repaid during the vacation or grace period, divide them into equal parts and add them to the remaining installments of the loan. In this case, the loan installments will increase. Another solution used by banks is to extend the loan repayment period. Credit holidays or a grace period may also involve an additional cost, which results from the need to draw up an annex to the existing contract and a change in the repayment schedule.
Think before you enlist
Credit holidays or a grace period should not be the primary way to save your home budget. If there are problems with the budget, and we have the possibility of another form of financial support, we should use it. The possibility of holidays or a grace period should be an emergency exit in the absence of financial liquidity. It should be borne in mind that repayment of the loan after the period of suspension of installments will be a greater effort, as the amount of installments or repayment date will increase. However, for people who are struggling with temporary problems, it is a convenient solution (e.g. no need to submit an application for another loan) and a real financial improvement (thanks to temporary exemption from fees). Let’s remember, however, to carefully analyze the conditions of granting a vacation from a loan or grace period, so that their results do not put our finances in bigger trouble.