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Credit holidays – what are they and how do they work? Legal and commercial holidays

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Taking a loan for 10, 20 or 30 years, it is not always possible to predict your future financial situation. It is possible that the loan can be repaid ahead of time, but it may also happen that there will be temporary difficulties with the repayment of loan installments. The so-called credit holidays can help in this case. What are credit holidays and how do they work? What are statutory credit holidays?

Credit holidays allow you to temporarily suspend loan repayment.
Suspended installments do not disappear – you have to pay them, but at a later date.
There are statutory and commercial credit holidays independent of each other.
Taking advantage of credit holidays does not adversely affect your credit history.

Credit holidays – legal regulations

The main source of regulations on the functioning of banking institutions, including the granting of loans, is the Act of August 29, 1997, Banking Law.

Credit holidays, on the other hand, have been legally regulated in the Act of 19 June 2020 on interest subsidies for bank loans granted to entrepreneurs affected by COVID-19 and on simplified proceedings for approval of an arrangement in connection with the occurrence of COVID-19. This act concerns the so-called statutory credit holidays, which must be distinguished from credit holidays granted on an individual basis by commercial banks.

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Suspension of loans

Credit holidays include agreement with the bank about temporary suspension or deferral of loan installments repayment. That is, with the consent of the bank for a certain period of time, you can default on your loan. Unpaid installments, however do not disappear – you will still have to pay them, only that at a later time.

This solution is aimed at people who experience temporary financial difficulties, for example, they have lost or changed jobs or are faced with unforeseen expenses. Thanks to credit holidays, it is possible to temporarily reduce your financial obligations and, for example, avoid penalties for late loan repayments.

Simultaneously credit holidays are not recommended in the event that the financial difficulties are not temporary, but long-term. After several months of vacation, the obligation to pay loan installments will return, which in addition will usually be higher than before the break in repayment. In such cases, it is therefore best to contact your bank and try to find a different solution to your situation.

One of the possible solutions to long-term loan repayment problems is then loan consolidation. However, it is a bad idea to try to pay off loan installments by incurring further obligations, including so-called payday loans.

Credit holidays 2021

Credit holidays it does not mean that our loan liabilities will decrease. On the contrary, most often we will pay for them in the end even more than without taking a break in loan repayment as they will increase interest for the extended period crediting or other additional fees will be charged.

There are different solutions for paying off temporarily suspended installments:

extension of the total loan period for credit holidays, ● adding the value of suspended installments to the remaining installments after credit holidays, ● adding the value of suspended installments to the last loan installment.

Usually, you can take advantage of credit holidays only once for a given loan, although there are exceptions in this regard. A special exception is also the situation where two types of credit holidays are used for a given loan – commercial and statutory.

Credit Holidays – Shield 4.0

Statutory credit holidays are a solution introduced in June 2020 under the so-called anti-crisis shield 4.0. It allows each borrower to who lost their job or other main source of income after March 13, 2020, to suspend the repayment of loan installments no charge. This applies to both mortgage and consumer loans.

The use of the statutory credit holidays takes place on the following terms:

● Suspension of repayment may apply only one loan of a given type, for example, a mortgage. ● The suspension of repayment may only apply loans taken before March 13, 2020whose loan term ends after 6 months from that date. ● The borrower himself decides whether to suspend the loan repayment for one to three months.
● With loan repayment suspension no fees may apply nor additional interest, in addition to the insurance charges related to the credit.

Statutory credit holidays

You can take advantage of the statutory credit holidays once each private borrower. If the borrower meets all statutory conditions, his the bank cannot refuse him to grant such vacations.

Taking advantage of the statutory credit holidays is as follows:

● Borrower submits an application to his bank for statutory credit holidays. ● The bank confirms receipt of the application within 14 days and suspension of the performance of the loan agreement. ● If the given loan was related to insurance, the bank informs about the amount of the insurance premium required during statutory credit holidays. ● The total loan period will be extended for the duration of credit holidays.

The lender is not required to document the loss of his primary livelihood – his declaration in this regard is sufficient. However, it should be remembered that submitting an untrue declaration may in this case be associated with being brought to criminal liability for making a false statement.

Commercial Loan Vacation

In addition to statutory credit holidays, banks also offer commercial credit holidays. These are credit holidays offered on different terms than those provided for in the Anti-Covid Act. This means that banks can, inter alia, charge additional fees for them and flexibly set the duration of the suspension loan repayments – there are even offers of 12-month commercial credit holidays.

Offering commercial credit holidays however, it is not mandatory and the banks decide for themselves whether and how to propose them. Thus, unlike in the case of statutory credit holidays, the bank is also not obliged to accept the application submitted by the borrower for such a vacation.

For details on commercial credit holidays, please contact your bank – if they have such a service on offer.

Taking advantage of a commercial credit vacation does not prevent the borrower from taking advantage of the statutory credit holidays. An application for a statutory holiday can be submitted even during the commercial holiday – then the bank is obliged to stop the ongoing commercial holiday.

Credit holidays and new credit

Failure to repay loan installments on time is usually noted by financial institutions and may result in the inability to take out a new loan in the future. Concerns of this type have also arisen with regard to credit holidays.

However taking advantage of credit holidays, both statutory and commercial, has no negative impact on your credit history. An agreement with the bank regarding the suspension of repayment of a certain number of loan installments will be recorded in the Credit Information Base (BIK), and therefore they will not be considered as arrears in repayment.

Thus, the borrower need not be afraidthat take advantage of credit holidays will negatively affect his creditworthiness in the future.

Credit holidays and a grace period

In addition to commercial credit holidays, banks also offer grace period in loan repayment. Both solutions rely on deferred loan repayment for the time specified in the contract with the bank, and then return to paying off the loan on previously agreed termshowever, they are not identical.

While credit holidays mean that the borrower does not have to pay back the bank or zloty for a fixed period of time, in the case of a grace period in loan repayment he must all the time pay off the interest part of the loan installments. The grace period applies only to the capital part of these installments, i.e. the part that constitutes the repayment of the borrowed capital.

Thus, both solutions have their own advantages and disadvantages. During the loan holidays, the financial relief for the borrower is greater, however, extending the loan repayment period may cause an increase in interest and thus an increase in the total amount to be repaid. During the grace period, the financial relief is smaller, but the amount of the loan obligation does not increase.

The Act of August 29, 1997 Banking Law The Act of June 19, 2020 on interest subsidies for bank loans granted to entrepreneurs affected by COVID-19 and on simplified proceedings for approval of an arrangement in connection with the occurrence of COVID-19 https: // www. uokik.gov.pl/aktualnosci.php?news_id=16859

Main photo source: Shutterstock

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