A payment holiday is not necessarily debt forgiveness
A payment holiday normally means an agreed pause in scheduled payments for a defined period. Depending on the agreement, interest, charges or the contract term may be affected. A holiday should be distinguished from a regulatory moratorium, an informal missed payment, a complete discharge of debt and a different form of reduced-payment arrangement. Consumers should be given a clear explanation of whether instalments are rescheduled, the balance changes and what will be payable when regular payments resume. The treatment of arrears differs among regulated fixed-sum agreements, running-account facilities, overdrafts and mortgage products. Identify the governing law and regulated activity before applying a template. Where a servicer acts for the creditor, the internal delegation should explain who can make concessions, change contractual terms and correct interest postings. The firm's audit record should document which source applies, whether it is binding law or regulator guidance, and the event that will trigger the next legal review.
When a payment pause is considered
A creditor should establish the cause and expected duration of financial difficulty before offering a pause as forbearance. For UK regulated consumer credit, FCA CONC 7.3.4R requires due consideration and forbearance for relevant customers, and CONC 7.3.5G provides examples including deferring arrears. A payment holiday is one possible measure, not an unconditional entitlement available for every product. Assess whether a short pause genuinely improves the customer's situation or produces a larger future repayment burden. A single workflow will not fit a borrower who disputes the debt, one facing short-lived income loss and one whose circumstances have permanently changed. Staff should have authority to flag mistakes, seek specialist review and pause inappropriate automated messages. Document the consumer's explanations using proportionate information, distinguish an adjustment from forgiveness of principal and check the next scheduled payment. These safeguards help avoid presenting a servicing option as a promise of any particular personal financial outcome.
Cost implications and clear explanations
The lender must identify the treatment of contractual interest, fees and arrears while payments are paused. The final balance may be greater if interest continues, unless a rule or agreed concession changes that result. When the pause is a repayment arrangement used as forbearance and the customer meets its terms, UK CONC 7.3.5GR requires the firm to reduce, waive or cancel further interest or charges to the extent necessary to prevent the level of debt from rising during the arrangement. Assess precisely whether that rule is engaged rather than assuming every product holiday has identical cost treatment. The treatment of arrears differs among regulated fixed-sum agreements, running-account facilities, overdrafts and mortgage products. Identify the governing law and regulated activity before applying a template. Where a servicer acts for the creditor, the internal delegation should explain who can make concessions, change contractual terms and correct interest postings. The firm's audit record should document which source applies, whether it is binding law or regulator guidance, and the event that will trigger the next legal review.
Temporary coronavirus schemes are not universal ongoing rights
Certain UK payment deferrals introduced during the coronavirus emergency arose under temporary FCA guidance and sector-specific arrangements. Those temporary interventions must not be presented as a standing entitlement to an identical payment holiday in October 2026. A current customer request instead requires review of the applicable legislation, FCA rules, product terms and firm-specific forbearance assessment. Credit reporting consequences also depend on the relevant scheme and rules, so historic pandemic treatments should not be automatically applied to present hardship arrangements. A single workflow will not fit a borrower who disputes the debt, one facing short-lived income loss and one whose circumstances have permanently changed. Staff should have authority to flag mistakes, seek specialist review and pause inappropriate automated messages. Document the consumer's explanations using proportionate information, distinguish an adjustment from forgiveness of principal and check the next scheduled payment. These safeguards help avoid presenting a servicing option as a promise of any particular personal financial outcome.
Implementation in servicing systems
A holiday needs clear start and end dates, a defined payment obligation during the period and an accurate plan for missed contractual instalments. Operations should check whether collections communication, payment requests, statements and any required statutory notices remain accurate. Where a holiday alters the contractual schedule, document the legal basis and consumer communications for that change. Test accounts with direct debit collection, automatic card repayment, multiple instalments due, mixed financing products and an intervening refund. The treatment of arrears differs among regulated fixed-sum agreements, running-account facilities, overdrafts and mortgage products. Identify the governing law and regulated activity before applying a template. Where a servicer acts for the creditor, the internal delegation should explain who can make concessions, change contractual terms and correct interest postings. The firm's audit record should document which source applies, whether it is binding law or regulator guidance, and the event that will trigger the next legal review.
EU forbearance provisions and national rules
Article 35 of Directive (EU) 2023/2225 anticipates appropriate forbearance measures before enforcement proceedings and contains examples of possible changes to credit agreements. The national measures generally apply from 20 November 2026, subject to relevant transitional provisions. That EU timetable does not replace current national rules or mean that a borrower can demand a fixed-length holiday from all lenders. Determine the Member State, agreement type and legal rights before treating a holiday as mandatory. A single workflow will not fit a borrower who disputes the debt, one facing short-lived income loss and one whose circumstances have permanently changed. Staff should have authority to flag mistakes, seek specialist review and pause inappropriate automated messages. Document the consumer's explanations using proportionate information, distinguish an adjustment from forgiveness of principal and check the next scheduled payment. These safeguards help avoid presenting a servicing option as a promise of any particular personal financial outcome.
Monitoring the end of a holiday
Before resumption, make sure the customer can understand the amount and due date of any revised instalments and can raise a concern if circumstances remain difficult. Check that payment collection rules and arrears classifications align with what was agreed. UK firms should keep forbearance under review, including under CONC 7.3.5IR. Record any further concession and its effect on cost and expected payoff date. A holiday that expires without a sustainable next stage can leave the consumer in greater difficulty, so follow-up should reflect actual evidence rather than an automatic escalation. The treatment of arrears differs among regulated fixed-sum agreements, running-account facilities, overdrafts and mortgage products. Identify the governing law and regulated activity before applying a template. Where a servicer acts for the creditor, the internal delegation should explain who can make concessions, change contractual terms and correct interest postings. The firm's audit record should document which source applies, whether it is binding law or regulator guidance, and the event that will trigger the next legal review.
Frequently asked questions
Is every customer entitled to the same repayment concession?
No. The applicable law and the consumer's individual circumstances determine which measure may be appropriate.
Does interest always stop after one missed payment?
No. Applicable contractual and regulatory limits must be checked, including the conditional UK CONC 7.3.5GR rule.
When do national CCD2 measures generally apply?
20 November 2026, subject to applicable national and transitional provisions.
Primary sources
FCA CONC 7.3 ↗Directive (EU) 2023/2225 ↗Read the source in its current version. National implementing measures and product-specific applicability may require additional research.