A payment holiday request lets you temporarily pause or lower your loan payments—such as on mortgages, personal loans, or auto loans—when facing financial hardship. Unlike simply missing payments, which harms your credit, a payment holiday is an agreed-upon pause with the lender’s approval, intended to provide short-term relief without immediate penalties.
To request a payment holiday, contact your lender as soon as you anticipate difficulty paying. You’ll explain your situation and provide documentation if needed. The lender evaluates your request and, if approved, sets terms on the payment break duration and interest handling.
Important to note, interest usually continues to accrue during the holiday and may be added (capitalized) to your principal balance, increasing the total amount owed and potentially extending your loan term or raising future monthly payments. This trade-off means while your immediate cash flow benefits, the loan’s overall cost will rise.
Advantages include avoiding late fees and protecting your credit score, but disadvantages involve higher total interest costs.
For more on related topics, see our Loan Modification Trial Period Plan (TPP) and Interest Accrual glossary entries.
If considering a payment holiday, ask your lender:
- Will interest continue to accrue during the break?
- Will accrued interest be capitalized?
- How will missed payments be repaid?
- How does this affect my credit report?
Always get any agreement in writing before pausing payments.
Understanding the full implications helps you use a payment holiday effectively as a short-term tool rather than a long-term fix, protecting your financial health during tough periods.
For authoritative guidance, see the Consumer Financial Protection Bureau’s explanation of forbearance and payment deferrals.
