What if you can’t pay your bills due to Coronavirus?
We think the country is
heading in to period of recession and depression with many people put under
Jobs are already being
hit in the travel and leisure sector as businesses close their doors.
But surely this is just
the start as the whole economy will slow down hugely. People will stop spending
and will delay making financial decisions. Businesses will be forced to react
which could mean reducing staff hours or laying people off. Some businesses may
not recover which could lead to redundancies.
Flybe is the obvious
example but how many pubs, clubs, theatres, restaurants etc can afford to trade
through an extended period with no customers. And then what happens to all the
other businesses in the supply chain?
So Promise Money is
encouraging people to consider right now what they might do if there is a risk
of their income being significantly reduced?
From a financial
standpoint, we think there are two key messages to be shared with friends and
MESSAGE 1 – Make a plan to deal with your mortgages and priority commitments
for most people are likely to be their mortgage, rent, utilities and basic
However we would
include unsecured credit commitments in this too.
Here’s why. It takes
years to build up a good credit history and only a small lapse to ruin
So whilst it’s
important to continue to paying the mortgage or rent to keep a roof over our
heads, remember to look after the smaller credit commitments, including credit
cards and utility bills.
are two main reasons:
I expect we all hope
the effects of the Coronavirus on jobs will be short lived but, for those who
fall behind on credit commitments, it could follow them for years as every
missed payment will be recorded on their credit history. In extreme
circumstances they may even get hit with defaults or court judgements which stay
on their credit file for 5 years. As many lenders use a credit score to support
lending decisions this could result in borrowers being denied credit or paying
more for it over a long period of time.
To put that into
perspective, slipping from a perfect history to one with a few glitches could
increase mortgage interest payments by between 50% and 100% on any new
borrowing. Say from 1.6% to over 3%. With recent CCJ’s and arrears someone who
previously qualified for rates of around 2% could be looking at rates of 5% or
higher. On an interest only mortgage that could mean the repayments trebling so
looking after our credit histories is important. The same principles apply to
secured loans, business finance and commercial
Promise Money we arrange loans and mortgages for people with perfect, damaged
and bad credit histories.
And don’t think it
doesn’t affect you if you are already paying a higher mortgage rate due to other
circumstances such as higher LTV, property type, type of income etc. When it
comes to borrowing more or moving home these lenders too are likely to charge
more if there is poor credit in the background – or turn down the application
When it comes to
unsecured loans the increase in interest
rates is massive, mainly because there is no security so a borrower’s credit
history is the main thing a lender can base its decisions on.
Hold on to your hat
but someone who qualifies for a high street bank unsecured loan at circa 5% to
7% today, could be looking at a typical APR of 50% with a CCJ or default under
their belt – that’s assuming they can find a lender. The unlucky ones often end
up with pay day loans at rates over 1000%.
In the interests of
keeping the maths simple this means, where you were paying 6% on a £10,000 loan
you would pay around £600 interest in a year. With some mild adverse credit this
could increase to a rate of 50% with interest charges of around £5,000 per year
on your £10,000 loan. Payday loans are very short term and this disguises the
very high interest rates. But if you could get a £10,000 payday loan over a 12
month period, the interest charges, at 1,000% per annum would result in interest
charges of £100,000. When it’s broken down to borrowing £100 for a week and
paying back £120 it doesn’t sound so bad but it’s the same rate and over a year
you would pay back £1,000 in interest on borrowings of
By falling in to
arrears we all risk having that facility being taken away from us – for example
credit cards could be frozen. This could be an important facility in the future
no one wants to lose.
By making the
minimum payments it should be possible to keep the facilities open, should they
So our advice to
borrowers is to prioritise protecting their credit history to keep as many
borrowing options open in the future.
thoughts may turn to debt management plans, but they need to consider that part
of a debt management strategy is to freeze interest payments on credit. This
normally shows as detrimental information on the credit file and leads to
defaults and CCJ’s. So whilst it may help cash flow, the damage to the credit
history is done and will affect any lenders decisions for considerable time to
Payday loans may
also become a consideration but with interest rates over 1000% and the fact that
other lenders probably wont lend to those with recent payday loans, prudent
management of finances should be the referable route to
MESSAGE 2 – Don’t bury your head – talk to your
If you have a
mortgage, the main banks are permitting payments holidays and a similar level of
understanding will filter through to secondary lenders. But don’t assume they
know what’s going on in your life.
In the finance
industry there is different way of handling customers who can’t pay compared to
those who won’t pay. If you have a problem, tell your lender so they can help
you and hopefully record the matter correctly on your credit file. Otherwise
they will assume the worst.
We encourage you to
have that “what if” conversation with yourself now. What if your income was
significantly reduced – or nil – for 4 months.
Have a plan, and if
you can’t replace that income, decide how you will manage your priorities and
minimise the impact on you, your family and your credit
Without a plan many
will come to regret the damage they have unwittingly
Other actions you
Might now be a good
time to consider a consolidation loan? Whilst spreading your repayments over a
longer term may cost you more in the long term, it could free up vital cash flow
and there are lenders which allow you to make overpayments to pay the loan off
sooner when you have spare cash available.
Might now also be a
good time to consider income protection insurance – before jobs and sectors are
threatened and new insurance policies become scarce or more
Please share this
article with family and friends if it may better help them prepare for the fall
out of Coronavirus.
For advice on
mortgages, homeowner loans and business finance please call 01902 585020 or
2 out of 3 borrowers get a lower rate than our representative example of a regulated secured loan below:
Mortgages and Remortgages
£80,000 over 240 months at an APRC OF 4.3% and a discounted variable annual interest rate for two years of 2.12% at £408.99 per month followed by 36 payments of £475.59 and 180 payments of £509.44. The total charge for credit is £39,873 which includes a £995 broker / processing fee and £125 application fee. Total repayable £119,873.
Secured / Second Charge Loans
£63,000 over 228 months at an APRC OF 6.1% and an annual interest rate of 5.39% (Fixed for five years – variable thereafter) would be £463.09 per month, total charge for credit is £42,584.52 which includes a £2,690 broker / processing fee. Total repayable £105,584.52.
£4,000 over 36 months at an APR OF 49.9% (fixed) and an annual interest rate of 49.9% would be £216.21, total charge for credit is £3,783.56. Total repayable £7,783.56.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME
REPAYING YOUR DEBTS OVER A LONGER PERIOD CAN REDUCE YOUR PAYMENTS BUT COULD INCREASE THE TOTAL INTEREST YOU PAY. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Written terms available on request. Loans are subject to affordability status and available to UK residents aged 18 or over. Promise Money is a trading style of Promise Solutions Ltd. Promise Solutions is a broker offering products which represent the whole of the specialist second mortgage market and is authorised and regulated by the Financial Conduct Authority – Number 681423.
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