Are payment holidays a wise idea in South Africa?

TL;DR

A payment holiday can give you short-term relief, but it’s not free – interest keeps building, which increases your total debt. It works best for temporary setbacks. If your financial pressure is ongoing, options like debt consolidation or debt counselling may be more effective.

We’ve all felt financial pressure at some point. Even small changes to your monthly expenses can be hard to manage if your budget is already tight. An interest rate increase, an emergency, or a sudden loss of income can quickly put you under strain.

Some lenders offer a payment holiday – also known as a loan payment break. This arrangement lets you pause or reduce your loan repayments for a short time. It can seem like an easy solution when you need extra cash, but it’s important to understand how it works and what it could cost you in the long run.

In this guide, we explain the pros and cons of payment holidays, how they affect the total cost of your loan, and what they may mean for your credit profile. We also look at alternatives that may offer more sustainable relief – for example, consolidating your debt to help improve your cash flow.  

Tip: If you’re struggling with repayments, register with JustMoney to find out if you qualify for a debt consolidation solution.

Payment holidays: JustMoney's verdict

A payment holiday can be helpful – but it’s not free money and will usually increase your total debt.

It works best if your financial setback is temporary and you have a clear plan to recover.

If your situation is more serious, consider long-term solutions, such as consolidating your debt with a consolidation loan or personal loan, or through debt counselling.

Don’t wait until you’ve missed payments. Speak to your lender early and explore your options. 

What is a payment holiday?

A payment holiday is an agreement with your lender to pause or reduce your monthly repayments temporarily.

It’s usually used when you’ve had a short-term loss of income, such as a medical emergency or unpaid maternity leave. However, you can also approach your creditor if you’re unable to pay your bills.

Payment holidays are not specifically covered in the National Credit Act (NCA). This means the arrangement is a mutual agreement between you and your lenders. “A payment holiday is an indulgence granted by your bank,” notes Ross Linstrom of Standard Bank.

Ask for the agreement in writing, and make sure you understand your rights under the National Credit Act (NCA).

A payment holiday is not debt forgiveness

A payment holiday isn’t debt forgiveness – it’s a deferral. “You will be charged fees and interest, which will increase your outstanding balance,” warns Linstrom. “Alternatively, ask your lender if the loan term can be extended by the payment holiday period, which will keep the repayment amount roughly the same.”

“A payment holiday is not a way to get out of debt, but it is better than ceasing to pay altogether,” says Stephan van der Merwe, senior attorney at the Stellenbosch University Law Clinic.

According to Van der Merwe, you’re more likely to be approved if you can demonstrate that your financial setback is temporary.

A payment holiday can apply to home loans, vehicle finance, personal loans, and credit cards, and typically lasts between one and three months, as agreed with your lender.

When is a payment holiday a good idea?

A payment holiday isn’t a ready-made solution, but there are times when it can provide genuine short-term relief.

It may make sense if:

• You’ve lost your job or been retrenched 
• You’re dealing with a medical emergency or extended illness 
• You’re on unpaid maternity or paternity leave 
• You’ve had an unexpected expense, like a car repair or home emergency 
• Your monthly budget has been pushed too far by an interest rate increase 

In these cases, a temporary break can give you time to stabilise your finances.

When to avoid a payment holiday 

A payment holiday is designed for short-term setbacks – not ongoing financial problems.

It may not be a good option if:

• You’re already overindebted and struggling long-term 
• You want to free up cash for lifestyle spending 
• You’re already behind on your payments 

Most lenders require your account to be up to date before approving a payment holiday.

If your financial pressure is ongoing, a short break could leave you in a worse position later, as your debt will be higher when payments resume.

How much does a payment holiday really cost?

A payment holiday can feel like a free pass, but it isn’t – and the long-term cost may surprise you.

While you’re not making payments, interest usually continues to accrue on your full outstanding balance. This interest is then added to your loan, meaning you’ll pay interest on a higher amount going forward.

To understand how this works, it helps to know how to calculate interest on your loans.

Home loan example

What happens if you take a three-month home loan payment holiday on a R1.5 million home loan at 11.75% over 20 years?

 Interest added during the break can be close to R45,000.

Over time, this could increase the total cost of your loan by more than R100,000, depending on whether your repayment increases or your loan term is extended.

Personal loan example

Now let’s look at a short-term personal loan example, where the impact of a payment holiday can be more significant.

What happens if you take a three-month payment holiday on an R80,000 personal loan at 22% per year over five years?

A three-month payment holiday adds over R4,400 in capitalised interest immediately, with a total extra cost of around R10,500 over the remaining loan term. 

What feels like breathing room now can cost you much more over the life of your loan.

How does a payment holiday affect your credit score?

A payment holiday does not automatically harm your credit score, as long as it is formally agreed with your lender.

When the arrangement is approved, it should not be recorded as a missed or late payment, and your credit record should remain in good standing.

However, if you stop paying without an agreement, your account will be reported as in arrears, which can damage your credit score.

Some lenders may still note the arrangement on your credit profile. This isn’t necessarily negative, but future lenders may be able to see it.

To protect yourself:

• Always get the agreement in writing
• Check your credit report after the payment holiday ends 
• Make sure everything has been recorded correctly. 

It’s useful to understand how your credit score works and how to improve it over time. Check your credit score for free by signing up with JustMoney.

How to apply for a payment holiday

Lenders don’t advertise payment holidays, but most offer them if you ask.

1. Here’s how to apply:
2. Contact your lender (whether by phone, app, or in-branch)
3. Explain your situation honestly
4. Provide supporting documents, for example, proof of income loss, a medical certificate, or notification of retrenchment
5. Agree on the terms (duration, repayment changes, and how interest will accrue)
6. Get everything in writing before you stop making payments

Questions to ask your lender

• Will interest continue to accrue?
• Will my loan term be extended?
• Will my monthly repayment increase afterwards?
• How will this affect my credit record?

Understand the factors you need to consider when reading your loan agreement, so you know which additional questions to ask.

Which loan should you prioritise for a payment holiday?

If you’re considering a payment holiday, your home loan often offers the biggest impact because it’s usually your largest expense.

One approach is to pause your bond repayments and use the freed-up cash to pay off smaller, high-interest debts.

Here’s an example of what that would look like:

• Home loan: R1,800,000 at 11.25%, with a monthly repayment of R17,500
• Personal loan: R45,000 at 22%, with a monthly repayment of R1,500

By taking a three-month holiday on the home loan, you free up R52,500 (3 x R17,500). You can use this to fully pay off the personal loan, leaving only your home loan outstanding. 

Here are a few things to keep in mind:

• Vehicle finance holidays can be risky because the car loses value over time 
• Credit card payment holidays are rare and often expensive

Alternatives to a payment holiday

A payment holiday isn’t your only option. In many cases, other solutions may offer more sustainable relief.

Extend your loan term

Extending your loan term can reduce your monthly repayments, but it increases the total interest you pay over time.

Home loans can typically run for up to 30 years, while vehicle finance terms depend on the age of the asset.

Example: A R1.5 million home loan at 11.25%.

Extending the loan term reduces the monthly repayments, but it dramatically increases the total interest paid.

• Moving from 20 to 25 years saves about R766 per month, but costs roughly R715,000 more in interest. 
• Moving from 20 to 30 years saves about R1,170 per month, but adds over R1.46 million in extra interest over the life of the loan. 

This illustrates why extending your loan term can provide short-term relief but comes with high long-term costs.

Debt consolidation

Debt consolidation allows you to combine multiple debts into a single loan with one monthly repayment. However, you need to have a good credit score to qualify for such a loan.

This option is best for people with several high-interest debts who may be struggling to manage multiple repayments. However, it only works if you stop taking on new debt and use the loan to settle existing balances.

With debt consolidation, you pay one monthly fee and, depending on the terms, a reduced monthly repayment, potentially at a personalised interest rate.

Make sure the interest rate isn’t excessively high, which would make repayment more challenging. 

Debt counselling/debt review

If your financial problems are ongoing, debt counselling may be a better solution.

Debt counselling – also known as debt review – is a formal, legal process where a registered debt counsellor restructures your debts into one affordable monthly payment.

It can also protect you from legal action, provided you stick to your repayment plan. Note, however, that you can’t take on any new credit while under debt counselling.

Before making a decision, understand the debt rehabilitation solutions available to you – especially the difference between debt consolidation and debt counselling.

Negotiate directly with your creditor

You don’t always need a formal “payment holiday”. You can ask your lender for:

• A reduced monthly payment
• An interest-only arrangement
• A restructured repayment plan 

Lenders are often willing to help you if you reach out early, before you miss payments. 

Tip: Has your credit score changed? Register to check your credit score for free in under a minute.

FAQs about payment holidays

What is a payment holiday on a home loan?

A payment holiday on a home loan is an agreement with your lender that lets you pause or reduce your monthly repayments for a short time, usually one to three months. During this period, interest still accumulates and is added to your loan balance. This means your repayments may increase later, or your loan term may be extended. It offers temporary relief, but the full loan still needs to be repaid.

How long can a payment holiday last in South Africa?

Most payment holidays in South Africa last between one and three months, depending on your lender and your situation. In more serious cases, such as retrenchment or illness, a longer period may be considered. The exact terms are agreed upfront and should always be confirmed in writing. Before accepting, make sure you understand how interest will be charged during the break.

Does a payment holiday affect your credit score?

If your payment holiday is formally approved by your lender, it should not be recorded as a missed payment, and your credit score should not be negatively affected. However, if you stop paying without an agreement, your account will be reported as in arrears, which can harm your credit record. Some lenders may note the arrangement on your profile, which future lenders may be able to see.

Do you still pay interest during a payment holiday?

Yes. In most cases, interest continues to build up on your outstanding balance during a payment holiday. This interest is usually added to your loan, meaning you’ll pay interest on a higher amount going forward. As a result, your monthly repayments may increase, or your loan term may be extended. Always confirm exactly how your lender applies interest before agreeing.

Can I get a payment holiday if I’m already behind on payments?

It depends on your lender and your situation. Many lenders require your account to be up to date before approving a payment holiday. If you’re already in arrears, they may ask you to catch up or agree to a repayment plan first. It’s best to contact your lender as early as possible, rather than waiting until your situation becomes more difficult.

What is the difference between a payment holiday and debt counselling?

A payment holiday is a short-term arrangement that lets you pause or reduce repayments on a specific loan. Debt counselling, on the other hand, is a formal legal process for overindebted people. A debt counsellor restructures all your debts into one affordable monthly payment. While a payment holiday offers temporary relief, debt counselling is designed for longer-term financial difficulty and restricts new credit.

^{The article provides general information to help you understand your options, but it doesn’t constitute financial advice. If you’re struggling with debt, you can apply online to see whether you qualify for a debt management solution that can help you regain control of your finances.}