What to do if your payment holiday is coming to an end

The start of September will have many thinking about how to manage their finances as payment holidays on overdrafts, mortgages and credit cards will soon come to end. The economic climate looks turbulent for the remainder of 2020 with increased job losses highly likely as the Government furlough scheme wraps up at the end of October.
Households wanting to reduce their monthly outgoings could save money by reviewing any current borrowing and switching this to a new product with a lower rate of interest. Our research shows that those with £3,000 on a credit card charging 18.9% APR could save £292 in a single year by switching to a fee-free 0% balance transfer card. Those using a £500 overdraft could save £49.20 by switching to a bank account with a lower rate of overdraft interest.

The way banks charge for overdrafts had an overhaul this year, with banks no longer able to charge different interest rates for authorised and unauthorised overdrafts and the removal of expensive daily fees. However, as a result, interest rates on overdrafts have increased significantly with some banks charging 39.9% APR for those spending on their overdraft. Someone with a £500 overdraft at this rate that is used for 15 days each month would cost £6.99 per month. A switch to Starling Bank's Current Account with an overdraft rate of 15.0% APR would only be £2.80 per month, a saving of £49.20 over 12 months.
And consumers can now also benefit from cash deals when they switch bank account, with some banks offering £100 when a new account is opened and certain payments in are met. Consumers should check the interest rate of overdrafts before they switch if they believe they might need to use this.
Consumers that use their overdraft every month can save money by switching to an account with a lower rate of overdraft interest.

However, a more permanent solution and lower cost alternative over time could be to payback their overdraft completely using a personal loan or a 0% balance transfer credit card. Of course, they must make sure they payback the new loan and credit card every month and not dip into their overdraft again.

The research also shows the potential to save nearly £300 per year by moving balances on expensive credit cards to a 0% balance transfer card. A £3,000 balance on a card at 18.9% APR costs £292 in minimum payments and interest in a single year. NatWest has a Balance Transfer Credit Card Mastercard that offers 20-months of interest free credit and no fee to transfer your balance.
Rachel Springall, finance expert Moneyfactscompare.co.uk said “Credit cards are a safe and convenient payment method, but those who are unable to clear their card each month may be charged interest and those with a sizeable debt would be better off switching it to a fee-free 0% balance transfer credit card. In just one year, borrowers could save almost £300 in interest, but they will need to make more than the minimum repayment on their card to do so. If borrowers need longer than a year to tackle their debts then they could choose one of the longer offers but they will typically be charged an upfront fee, so comparing these carefully is a must.”

In addition to the savings above consumers could also look to consolidate their debts using a personal or secured loan.

Often the greatest household expense is the cost of a mortgage, and those taking a remortgage now should be able to reduce their monthly mortgage payment as interest rates remain at very low levels. Even though mortgage rates have started to increase in August 2020, they remain at lower levels than seen in prior years and therefore significant savings can still be made. Borrowers will need to check that they can switch without incurring an early repayment charge as this might cost them more than they can save.

Those that have used a mortgage payment holiday or have been on furlough may find it harder than usual to remortgage right now as some lenders have started to not accept furlough as income for a mortgage application. Those in this situation with a mortgage deal that has ended or is close to ending should talk with a mortgage broker who will know which lenders are currently open to accepting applications without or with fewer restrictions.
And for those that now need to take a mortgage payment holiday these remain open for applications until 31 October 2020.