Companies have ceased lending amidst the coronavirus pandemic, concerned that customers will struggle to afford repayments during the current climate.
The COVID-19 crisis has raised major concerns, not just for people’s health and wellbeing, but also their financial stability. Earlier this month, it was reported that over 2 million people in the UK had become unemployed as a result of coronavirus, with lockdown measures having a drastic impact on businesses from numerous industries.
With such a sharp rise in unemployment and a growing concern over financial wellbeing, many lenders have imposed stricter lending criteria, or taken loan products off the market altogether, with Amigo Loans initially making a public announcement.
As lenders conduct their operations through the affordability and creditworthiness of borrowers, many have found it difficult to properly assess applicants, as financial stability becomes an increasing widespread concern. This has led to many tightening lending criteria, and some ceasing to lend altogether.
Some loan providers are now only accepting applicants who are key workers in difficult or “emergency” situations, whilst others tighten assessment criteria in other areas. For example, many lenders rely heavily on an applicant’s financial history over a certain period of time, however, with the current COVID-19 situation, financial histories before the crisis are becoming a less reliable indicator of an applicant’s affordability.
What Other Measures Are Lenders Taking to Manage COVID-19’s Impact?
In addition to withdrawing new loan offers and tightening restrictions on lending criteria, loan providers are also taking measures to support their current borrowers. The FCA has recently imposed new regulations for the lending industry, with many providers now obliged to offer payment holidays for their existing loans.
Payday loans lenders are obligated to offer borrowers struggling due to COVID-19 a 1-month payment holiday. During this period, no interest will be applied to the loan, and borrowers will not have to make repayments.
Borrowers can also apply for a 3-month payment holiday on personal loans; this includes logbook loans, guarantor loans and home collected credit. During this period, borrowers will have to pay no, or a smaller amount, of their loan repayments. Interest will still be applied during this period.
Whilst borrowers can apply for these payment holidays The FCA have advised that
“If you can afford to keep up with repayments, either in full or a smaller sum, then you should do so.”
These payment holidays are intended for those who are struggling financially due to the current COVID-19 crisis, and should not be used unless necessary.
Ian Sims of Badger Loans commented:
“Our panel of lenders are welcoming the payment holidays for all types of personal and unsecured loans. Many see this as a continued way of practicing responsible lending and this should benefit the customer long-term. However, using a payment holiday should not be seen as an excuse to avoid payment and borrowers who have repeatedly missed payments prior to this will be assessed on a case-by-case basis.”