What do the credit holidays mean and what is the permissible duration thereof?

The emergency situation declared worldwide and also in Latvia due to COVID-19 or coronavirus in March 2020 has significantly affected our national economy in general and each household individually. Even the economic crisis back in 2008 did not enforce many families to plan their budgets to such detail, while idle standing of companies causes fear of the planned income. The pre-COVID-19 pace of work has still not returned in many companies, and it is not clear, when will the life get back on normal track as it was before the emergency situation. Thus, income section of many households is under a question mark, while expenses have remained unchanged, or even increased due to the family’s common daily life. Credit payments make major part of these expenses. In order to facilitate the family’s financial situation, credit institutions offer credit holidays, but, as soon as the possibly appears, credit holidays should be terminated, explains crediting specialists of "Sefinance". Here’s some more information on this topic.

At the beginning – what do the credit holidays mean?

Credit holidays allow for suspension of the principal amount of credit payment by several months (for mortgages – for a period of up to one year), thus facilitating burden of borrowed funds on the household budget. During this time, the debtor is obliged to pay the interest only, and this rate remains unchanged, whereas, repayment of the principal amount is postponed to the moment, when financial situation of the family has stabilised and funds for credit payments are available again.

When is it beneficial to take the credit holidays?

Credit holidays offer good solution for the moments, when amount of family’s regular income decreases, for example, in cases of temporary loss of job, as it has happened in many families due to the emergency situation caused by COVID-19. The principal amount of credit payment accounts for significant part of the payment, therefore, applying for the credit holidays allows you to avoid mortgage, consumer loan, student loan, car leasing and other credit payments for a certain number of months.

What is the dark side of the credit holidays?

As soon as the family’s financial situation has stabilised, credit holidays should be terminated, and repayment of full credit amount should be resumed. By choosing to prolong the credit holidays, customer runs a risk of larger amount of monthly payment for the remaining period, since the validity period of the contract is not prolonged. The principal amount accumulated during the credit holidays will be divided for the remaining monthly payments, thus, monthly payment will increase after the credit holidays.

Alternative to the credit holidays – merge of credits

In order to avoid large amount of monthly payments in the future, several credit companies offer merge of credits, as well as refinancing by reducing interest of a specific credit. These companies include also “Sefinance”. Ingus Rozenfelds, Board Member of the company, points out that this is not only a way to improve monthly payments, but also to save several thousand euro, which would otherwise be paid as interest. The company “Sefinance” considers itself as a credit doctors, since financial situation of every customer is dealt with on individual basis, going into details and offering the most beneficial solutions. Advice is available by e-mail info@sefinance.lv of free phone 8355.

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