Many unexpected events can thwart our plans and prevent us from paying the next loan installment. Particularly in the case of mortgages that are incurred for many years, we are not able to predict what will happen during this time. We can (knock!) Lose a job, someone in the family may have serious health problems, or we have simply promised a family vacation together, and the wallet has shortages. Banks are aware of these unfortunate situations that can affect us and meet us by offering credit holidays and grace periods. These two methods are used to temporarily increase our savings, but it should be remembered that when choosing one of these options we have to take into account certain consequences. At Simon Legree Now, we’ll show you the most important differences between credit holidays and pay-back periods,
First, let’s look at these two very different tools and analyze the differences between them. First of all, we must remember that before any decision related to the delay in repayment of the loan installment, we must go to our bank and inform him about our problem. Of course, it may happen that the bank does not agree to suspend repayment, which may be related to our insolvency, not very good credit history or permanent arrears. Once the bank agrees to postpone the next installment of our loan, we usually have two options: credit holidays and grace period. These tools are extremely helpful not only in terms of mortgage loans, but also cash loans.
Credit holidays are a temporary suspension of payment of the entire loan installment (its principal and interest parts). It should be remembered that many banks grant credit holidays for a strictly defined number of months in the year or throughout the loan period.
Payment grace period
In the case of a grace period, we are talking about temporary suspension of the necessity to repay the capital part of our loan installment, while interest must be paid on time. For this reason, this option is usually used by people who have been paying back their loans for a long time. This is of great importance when choosing a more attractive suspension arrangement for repaying our loan, because in the initial repayment period, interest is a large part. Therefore, grace period will not be a good option for all borrowers.
Is it worth using them?
It all depends on the terms and conditions of using a credit holiday or a grace period, which depends on the individual policy of each bank. Of course, it is always better to settle all repayments on time, as any delay will sooner or later affect our portfolio. Let us remember that unpaid capital will generate additional interest. In addition, it is also worth familiarizing yourself with the available methods of repayment of unpaid loan installments, which are usually offered to us by banks. The first is a proportional increase (temporary or permanent) in the amount of our installments. The second option is to extend the loan period by the time in which you were overdue.
Another important thing to keep in mind are the possible costs of choosing these solutions: the cost of an annex to the original contract, which can sometimes amount to several hundred dollars; increased interest resulting from a longer loan repayment period or commission for granting a grace period or loan holidays. To sum up, let’s use these solutions only in urgent cases or in other random events that prevent us from paying the next loan installment. In other cases, when we lack the money to go on an exotic vacation or buy a dream gift for our child, let’s not postpone repayment of our loan.