Covid-19 has turned everyday life on its head. Lockdown rules are keeping all but essential workers housebound. Many people are homeworking, furloughed or facing unemployment. Our health service is facing its greatest challenge yet. Trips to the supermarket feel even more like a dystopian nightmare and South Africans can’t even buy a bottle of wine to ease the stress…
To help contend with these radical changes to everyday life, a wide-reaching package of measures to help protect workers, families and businesses during the lockdown is now in place. This includes support for employees and and employers through the Unemployment Insurance Fund (UIF) and tax subsidies for workers in low income groups and
The Covid-19 pandemic has also changed the picture surrounding online loans. While the picture in South Africa is still crystallising, some of the more prevalent lenders in the industry are already making changes to the conditions of their lending and the overall length of time one can access credit.
For example, in the UK the FCA (Financial Conduct Authority) has implemented new guidelines, designed to help consumers who may be struggling with repayments as a result of Coronavirus.
These new guidelines include the option to request a one month loan freeze, the opportunity to pause the accrual of interest during this period and increased flexibility from lenders for customers facing ongoing financial difficulties beyond the one month freeze period.
Payday loan freezes in the UK
The FCA has given payday loan customers the option to request a one month payment freeze on their loans. It’s important to note that this shorter payment freeze period differs to the three month payment freeze period allowed for other personal loan types.
The payment freeze period is shorter for payday loans because these loans are, by nature, shorter than other loan types. Payday loans amounts are also typically less than alternative personal loan products.
During the one month loan freeze, the FCA has requested that lenders also pause the accrual of interest on payday loans. This means that such loans will not gain any interest during the pause period. This is a helpful step, as these short-term finance products often have higher interest rates.
Pausing interest will ensure this does not adversely affect consumers. Once the one month freeze ends, the loan and interest period will restart. Interest will begin to accrue once more and customers will be expected to follow their previous repayment plan, unless they have reviewed this with their provider.
What to do if you’re struggling to meet repayments during Covid-19
In the UK, the FCA has requested that payday lenders are flexible with customers who are experiencing financial difficulty as a result of Covid-19, especially if they have pre-existing financial difficulties or believe that they will not be able to make repayment even after a one month freeze. In these cases, the FCA has asked lenders to consider “immediate formal forbearance”, which means a complete pause to repayments and interest. They have also been asked to work with borrowers to make realistic repayment arrangements on a case-by-case basis.
Although regulations remain unclear in South Africa, your lender may be open to flexibility. In these scenarios it is important to communicate promptly and transparently with your lender in order to find the best resolution. Ignoring the issue may result in missed payments and rising interest.
Many lenders in South Africa are still open for business via online services, however, be aware some have had to make changes to their customer care. This is often due to call centres closing in response to social distancing measures. This may make communicating with your lender challenging. Irrespective of communication hurdles, it is essential that you reach out to your lender as soon as you are aware that you may have difficulties making repayments. At the moment, email may be the most effective contact method.