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If you have existing loans with providers in the Philippines or elsewhere in the world, you are likely to be offered the opportunity of taking a payment holiday while the world adjusts to the impact of the Covid-19 outbreak. This unprecedented situation has forced world leaders to release billions of relief funding to try and keep the economy stable but due to rising unemployment and a drop in consumer confidence, the future is very unpredictable. Lenders across the world understand this and have taken measures to help their customers. In this article, we look at the pros and cons of taking a payment holiday from your personal loan.


Time to regroup

If you have been unfortunate enough to lose your job as a result of the Covid 19 outbreak, taking a payment holiday from your loan repayments will give you time to regroup and work out your next move. Many people are now looking into types of online employment or social care work, due to the increased demand in this sector.

More cash in the short term

Though you will still need to pay off what you have borrowed eventually, in the short term, if you are struggling to pay for the basics like food, electricity and medical costs, taking a repayment holiday is potentially a good option for you. Like taking a salary loan, this option should not be considered as a long-term fix, but a way of allowing yourself to meet the basic cost of living while you secure yourself alternative means of income.


Some providers will offer different types of payment holidays, including paying just the interest each month, to total suspension of payments for an agreed amount of time. Whatever you do, talk to your lender first before you decide. There are consequences to payment holidays and choosing the option that is right for you will take a little time.

Essentials and emergencies

Taking a loan repayment holiday may be something you want to consider during emergency situations or when running low on essentials. Not having to pay your allocated amount for a period of a month or two may be enough to allow you to cover any additional costs that you might be incurring during the coronavirus outbreak.

A better alternative than default charges

If you miss repayments, you will be charged an extra fee or a higher rate of interest. This will affect your credit rating negatively, so if you think you are getting to a stage where this may start happening, speaking to your lenders to arrange a payment holiday would be the best course of action.


Negative Effect on Credit Rating

Though you will definitely see a short-term benefit in requesting a payment holiday from your loan provider if you are currently in financial difficulty, the longer-term effect may not be as positive for you. Though it is generally viewed far more favourably than simply missing payments, asking for a payment holiday will mean that you are likely to pay higher interest rates after the agreed period ends and you are also likely to suffer a reduction in your overall credit score. Though this can be rebuilt over time, it is something that should be considered very carefully, especially if you plan to take out a mortgage or make any significant purchases in the near future.

Higher Interest Rate, Longer Term Debt

As interest rates increase, so does the total amount you are required to pay off. This should be something you consider very carefully, especially if you are in insecure employment or between jobs. Paying off a higher interest loan can be extremely challenging when you are not earning a great deal of money and if not managed carefully, debts can spiral out of control.

May Affect Your Ability to Secure Credit in the Future

This will generally be a temporary situation, providing you are able to maintain future payments and keep an income coming in, but asking for a repayment holiday will generate an entry on your credit report. This means when lenders search for your details, they will be able to identify that you may be a higher risk customer. This means any new loans you apply for are likely to have a higher rate of interest.

Create a false sense of security

Though the short-term benefits of taking a repayment holiday can outweigh the negatives in some situations, for many people, not paying their instalments can simply create a false sense of security, while creating problems further down the line. You will still need to pay off what you have borrowed and adjusting your budget to incorporate the higher interest repayments when the repayment holiday is over could be tricky, especially if you have become accustomed to having more spare cash each month.

Should I take a repayment holiday?

This depends on your circumstances. If you are still able to pay for the basics and are not going without anything essential, it is probably not a great idea. Though the extra cash may be nice in the short term, you will end up paying more for it in the long term. If you are in a serious situation such as being unable to afford your rent, bills or medical expenses, then seriously considering a payment holiday would be advised. There are often several options and you do not necessarily have to take the full amount of time on offer. If you feel as if you can arrange things and generate some more income in a month or two, there is no benefit in asking for the full amount of time available. Similarly, if you can afford to pay a portion of what you owe, this may be a better option than paying nothing at all. Every lender will be slightly different and there are usually specific terms to each holiday agreement. The key is to weigh up your options carefully and always speak to your lender before deciding.

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