Applying for Loan after Payment Holiday

lumy

I took 3 months payment holiday during lockdown on the understanding that it didn't affect your credit rating and now it seems that banks may review your current account and reject a loan application due to a payment holiday. Regular payments have just started going out again.

So my questions are...

1) Would it help if we paid the 3 month shortfall prior to making the loan application?

2) Is there a list of which banks use/don't use this information when processing your application?

Many thanks :-:smile:

Grumpy_chap

The loan holiday should not affect your credit rating insofar as there will not be a default shown on your file.

Lenders can still see that you took the payment holiday because balance not reducing.  It seems reasonable that a lender would prefer to lend to someone who had some personal financial resilience rather than someone who demonstrated that they are already stretched.

It can't do any harm to pay off the payment holiday accrual and it will decrease your overall cost the sooner this is paid down.  However, if you have spare money, can you use that instead of taking the new loan?

Finally, what is the new loan for, and can it be avoided?

sourcrates

You must take into concideration that these last few months have been exceptional times in our history, you cannot be expected to have forseen such circumstances, the amount of people suffering job losses, furlough and redundancy is massive, and its certainly not the fault of the borrower at all.

But due to the above circumstances, banks are really tightening up their lending criteria, as no ones job can be described as 100% safe at present can it.

Not a good time to borrow to be fair.

lumy

On my credit file, the only information I can see is... amount outstanding and the monthly green tick. So.. are you saying they would be working it out mathematically by comparing the balance with the original balance less the months times the monthly payment amount rather than looking at the bank statements?

[Deleted User]

If you've struggled with payments in the last three months, the advisability of further borrowing, let alone acceptance, has to be low.

As above, lenders will see that you didn't make an payments on your existing debt from your files..

lumy

We haven't struggled with any debts and actually have decent savings. Taking the holiday was a mistake and based on incorrect advice and the banks running rings around goverment legislation as usual.

Since then we have actually overpaid all other debts to clear them sooner and should have restarted the mortgage but since there was supposed to be no problem taking the holiday we didn't bother. There is no struggling shown on our credit file.. it is a rating of excellent with no minimum payments and no missed payments. The loan is for an important reason and nothing to do with debt problems.

lumy

So the specific question is - if the balance is brought up to date (as if no payments were missed) - will this resolve the issue for us when they next update the credit file?

[Deleted User]

That's down to each lender.  Some will be more lenient than others, but I would look to put as much space between you and the payment holidays as possible. Your rating isn't of any interest to lenders, just the data.

The longer you delay another application, the better, especially if you also use the time to reduce your debts.

Grumpy_chap

lumy said:

We haven't struggled with any debts and actually have decent savings. 

You have not mentioned how much loan you need or how much savings you have but, if savings are sufficient, why not borrow from yourself?  Use the savings now to pay for whatever it is and then set up a standing order to repay the "loan" payment back to your savings account at whatever monthly rate the loan payments would be.

lumy

I need the loan plus the savings... I am looking to borrow about £6000 and my savings are about £9000. I don't believe waiting is any solution since we are heading for a worldwide recession so I imagine things are only going to get more difficult.
Really the question I have is... how does the bank work out that we have had a payment holiday? Does anybody know the answer to that? They can't just go by balance and installments, since it was a low start mortgage anyway, so that wouldn't add up.

[Deleted User]

They look at the balance and see how it has changed in comparison to the trend.