The coronavirus outbreak means this is going to be an incredibly stressful period, because although this is a health-based emergency, it’s also a financial-based emergency too. The more you can do now to plan ahead will save you time and energy – and importantly, money– when you might not be feeling at your best. This guide looks at how you can best manage your money, what help is available from your account providers and what to think about if you might need to borrow money.
Things you can do right now
First, check out our guide coronavirus, your rights and entitlements , to make sure you get everything you’re entitled to. The guide gives details of what support you might be able to claim now if you’re employed, self-employed or a gig economy worker.
If it’s possible, you need to put aside some money for if you can’t work to top up any drop in income. You’ll also need to look at what outgoings you have and work out the best ways to fund them in the short term. Follow these steps first.If you’re self-isolating or are classed as extremely vulnerable, you might be struggling to get cash so friends, family or volunteers can get food and medicine for you. Find out what options are available to help you access your money on the UK Finance website.
Step 1 Do an emergency budget
If you’re worried about cashflow have a look at what you’re spending and what income you have coming in. You may need to cut back on as much as possible to get you through the next few weeks. It’s not going to be fun, but you’ll be pleased you did once it’s all over.
You can also use this time to think about longer-term savings using our Budget Planner tool or look at ways to cut the cost of your household bills such as switching providers for your gas, electricity or mobile phone contracts.Read our guide to Cutting the cost of your household bills.
Step 2 Check your insurance policies
Check whether you have insurance policies that would cover your mortgage payments or replace some of your income. For example:
- Payment protection insurance
- Mortgage payment protection insurance
- Accident, sickness and unemployment insurance
These types of insurance are often offered with life insurance policies or mortgages and it’s easy to forget you have cover.
There is usually a minimum time period, which could be several months, before these policies pay out, so you should talk to your insurer to find out more, particularly if you are worried about redundancy.
Step 3 Talk to your creditors if you think you’re going to miss payments
Once you’ve done your budget if you think you’re going to struggle to pay essential bills make sure you talk to the people you owe money to before it becomes a problem.
Step 4 Use your savings
Do you have some savings you can rely on? Don’t assume you can’t get your money if it’s in a fixed term or notice savings account. Some banks and building societies are now saying you’ll be able to access them with no penalties. Check with your bank or building society if they’re able to help.
Coronavirus and your mental wellbeing
Coronavirus will have a big impact on a lot of our finances, which might negatively affect our mental wellbeing. Poor mental wellbeing might mean that you struggle to make the best money-based decisions for you, as well as act upon them. If you are feeling stressed, check out our Money problems and poor mental wellbeing guide for practical tips on how to cope financially through the pandemic, as well as where you can get free specialist help.
Remember, if you are struggling, it is always worth getting in contact with your bank, building society, lender or whoever you owe money to, to discuss your options. Many companies are aware that their customers are struggling with money at the moment and have put processes in to help. However, you can’t benefit from that help if you don’t let them know your situation.
If you are feeling very low or suicidal because of your money worries, you need to talk to someone now. Call 999 if you are in immediate danger or give the Samaritans a call on 166 123.
Help with loans, credit cards and finance agreements
You have until 31 March 2021 to apply for a payment holiday, also known as a payment freeze, on a number of borrowing options and finance agreements including:
- Credit and store cards
- Personal loans, including guarantor and logbook loans
- Car finance agreements
- Payday loans
- Rent to Own and Buy Now Pay Later agreements
- Pawnbroking agreements
- Insurance premiums
Your payment holiday can be up to a maximum of six months (one month for payday loans and other high-cost credit). So, if you have already taken the full six-month payment holiday (one month for payday loans and other high-cost credit), you cannot apply for another one. However, your lender might be able to help you in other ways.
If you’ve already taken your full payment holiday, it’s important you understand what happens when it comes to an end and what extra support might be available if you’re still strugging.Personal loans – what happens and what are your options when your payment holiday ends.Credit cards – what happens and what are your options when your payment holiday ends.Store cards – what happens and what are your options when your payment holiday ends.Payday loans – what happens and what are your options when your payment holiday ends.Rent to Own (RTO) – what happens and what are your options when your payment holiday ends.Buy Now Pay Later (BNPL) – what happens and what are your options when your payment holiday ends.Pawnbroking agreements – what happens and what are your options when your redemption period exemption comes to an end.Car finance – what happens and what are your options when your payment holiday ends.Insurance – what happens and what are your options when your payment holiday ends.
If you’ve not taken any yet, you can apply for a payment holiday of up to six months in total (one month for payday loans and other high cost credit). However, you should continue to make payments if you can afford to.
If you’ve already taken a payment holiday, this can be extended up to a maximum of six months. However, it’s in your best interests to start your repayment s again if you can afford to.
Cancelling your direct debit is not a payment holiday and will be counted as a missed payment if it has not been agreed with your lender. You should not cancel your direct debit without speaking to them first. A missed payment could show up in your credit file and may impact your ability to borrow money in the future.
Individual credit files should not be affected but if you are worried you should speak with your lender. You should also remember there are other ways lenders can tell whether you have taken a payment holiday which could impact future lending decisions.
Your lender or provider might take into account other information when making lending decisions, including information provided by you or bank account information.
Information your lender or provider should give to you
Your lender or provider should explain the impact of any option on your future repayments or the length of your loan term.
They should also discuss other options with you if a payment holiday is not suitable and alternative means of repaying the amount.
You should also always ask your lender or provider to explain what this will mean for you and whether there are other options which might be available to you.
If you already have an arranged overdraft with your main current account provider, you can ask for an interest-free overdraft of up to £500 for three months. Some banks are extending this to its customers automatically. If you have not got this automatically, you had until 31 October 2020 to ask for it.
This will run for three months from the date it was agreed if you asked for it. But if your account provider offered this automatically, it will run for three months from when it was first became available.
If you’re still in financial difficulties after three months, you can ask for it to be extended for another three months.
Bear in mind that when your interest-free period ends, the interest rate you’ll be charged will revert to what it was before. Typically this rate will be around 40%.
If you don’t have an overdraft, or your overdraft is less than £500, you can request an increased limit but this will be subject to normal affordability checks from your account provider.
If you have an arranged overdraft of more than £500, your provider is only required to provide it interest free up to £500, so you will pay interest on anything over this amount.
You may be able to apply for a special lower interest rate from your bank on arranged overdrafts above £500 if you are experiencing or expect to experience temporary financial difficulties because of coronavirus.
If you apply for this lower interest rate and you also have an interest-free overdraft of up to £500, you will only pay this lower interest rate on any arranged overdraft balance over £500.
The special lower interest rate offered by your bank may not be cheap and you should consider alternative forms of affordable borrowing before applying.
Before applying for temporary coronavirus overdraft support
Remember, when the interest-free or lower interest rate period comes to an end, you will be charged interest on your overdraft at the rate you previously agreed, which is typically 40%.
You should think carefully before taking advantage of any overdraft support offered by your bank and only do so if you need temporary financial help.
None of this support applies to fee free basic bank accounts.Find out more about your options when your overdraft returns to normal.
New rules around overdrafts which came into force on 6 April 2020 are still valid.Find out more about the new rules around overdrafts.
Problems paying your mobile phone and broadband bill
At the moment there is no specific support if you’re struggling to pay your mobile phone or broadband bill.
However, if you need help you should check your provider’s website and contact them straight away to explain the situation. Many providers do have support in place to help you if your finances have been affected because of coronavirus.
This might include:
- changing your bill date
- setting up an affordable repayment plan
- moving to a different tariff
- lowering your spending cap
- only using your phone when you need to.
If you’re on a mobile phone contract, you might be able to move to a pay as you go tariff, but this might involve paying a fee to end your contract early.
If you are worried about debt
Facing a sudden drop in income if you’re already juggling other debts can have a severe impact on your finances and is probably the last thing you need right now. You may have been managing to make repayments on money you owe but this crisis is going to push you into problem debt.
Although there may be a lot going on in your life that makes it easy to ignore debt, the sooner you get help the sooner you can get back on track.
There is lots of free, confidential debt advice out there to support you and you don’t have to face the problem alone. Talking to someone can mean one less problem off your mind.Use our debt advice locator tool to help you find advice in a way that’s best for you: face-to-face, online or over the phone.
If you think you might have to borrow money
If you don’t have any savings and are facing an emergency cash shortfall, borrowing may feel like your only option.
Try and use borrowing as a last resort and if you need to borrow, make sure you choose the right type of credit or loan for your situation. Otherwise, you could find yourself paying more than you need to.
Shop around and compare deals, looking at:
- the interest rate and the Annual Percentage Rate (APR)
- how much you will repay in total and whether you can afford the repayments
- any penalties for missed or late payments
- the cost per week or month and whether this might vary.
Borrowing from family and friends
If you’re able to borrow some money from family or friends who can lend you the extra cash, this could be a cheap way of getting extra money without resorting to Payday lenders or other types of high cost credit. They are also likely be more flexible about how you pay the money back.
Hopefully this will be a quick and easy short-term arrangement but you might want to read our guide Borrowing money from family and friends to make sure there are no arguments further down the line, especially if they get sick and need the money back in a hurry.
Personal loans and credit cards
If you’re thinking about getting a new loan or credit card, it’s particularly important now to think about if you can afford the repayments as your circumstances could change quickly because of the coronavirus outbreak.
Your credit rating affects the cost of your borrowing and it’s important to shop around and do some research on comparison sites.Find out more in our guide on borrowing and credit basics.
If you’re only going to have to cope with a drop in income for a couple of weeks a payday loan could seem like a really quick fix to help you until you’re back at work again.
However, there are a number of traps you could fall into with payday loans if you don’t know what you’re letting yourself in for.Before you sign up for any payday loan, we strongly recommend you read our guide Payday loans – what you need to know.
Other types of borrowing
Loans from credit unions are much cheaper than from other lenders and you can pay the money back at a rate you can afford.
Find out more about borrowing from credit unions.
If you’ve been turned down for credit by high street lenders, then you can look at fair finance providers. Their interest rates are lower than high-cost credit providers but higher than a credit union. Repayments are based on an affordability assessment which ensures the borrower can keep up with the repayments.Find a fair finance provider in your area on the Responsible Finance website.
Pawnbrokers are another option where you leave something valuable, such as jewellery, as security for a loan. The rate of interest you will be charged is normally lower than a high street bank and it’s unlikely you will get the full value of the item, but you will get a quick decision.Pawnbrokers – how they work.
High cost credit – things to think about
If your credit rating isn’t so great, cheaper borrowing may not be an option for you and you may be tempted by other forms of high cost credit, such as logbook loans or doorstep loans to see you through the crisis.
These forms of credit can work out to be very expensive and you need to think very carefully before you decide to borrow in this way. Before you make a decision read our guides.Home credit or doorstep lending.What are logbook loans?
Avoid loan sharks
Loan sharks are illegal lenders who often target people who are desperate and who can’t get mainstream credit. They might seem friendly at first but borrowing from them is never a good idea – even if you feel you have no other options.Read our guide on loan sharks.Before you take out any credit or loan, take a look at our Help with loans section.
This article is provided by the Money Advice Service.