Relief on debt payments

While we are expecting more announcements from the banks regarding how they will help customers through the Covid-19 coronavirus crisis, all have indicated that they will be offering payment holidays to people unable to meet their commitments as a result of the lockdown.

This will most likely be done on a case-by-case basis.

African Bank has confirmed that its credit life policy can be used for repayment relief.

“If loan customers are retrenched, receive short time (reduced working time) or are placed on compulsory unpaid leave, African Bank can cover their monthly payments for up to 12 months through their credit life insurance policies,” says Basani Maluleke, CEO of African Bank.

“Submitting the appropriate information and required documentation is essential to access these benefits.”

Other banks have indicated that they will release a statement regarding the options to claim on credit life.

At this stage, Standard Bank is the only bank to offer a blanket payment holiday to small businesses with a turnover of less than R20 million. This applies to all loans taken by the business, including overdrafts, credit cards, car finance and mortgages.

This is an automatic payment holiday commencing on April 1 and it runs through to the end of June.

Businesses unwilling to take the payment holiday will need to inform the bank. In addition, all student customers still studying full time with a Standard Bank student loan will receive a payment holiday over the same period at 0% interest and with zero fees.

An Absa spokesperson says the bank will consider cases depending on customers’ specific details.

This includes customers who are in good standing and are experiencing financial challenges as a result of Covid-19. “Absa has the ability to craft personalised credit solutions based on a customer’s unique circumstances.

"These include all-encompassing forbearance offerings, short- and long-term payment plans, comprehensive debt review processes and distressed property refinance options.

“The solution would largely be influenced by the customer’s situation. Most importantly at this point in time, customers should approach us as soon as they encounter financial difficulty.”

What is not yet clear is how people under debt review will be affected.

While debt counsellors wait for further information from the banks, Paul Slot of the Debt Counsellors Association of SA says that in the debt review industry there is a standard “change of circumstance practice”, whereby the debt counsellor can – with a Form 17.3 – request approval for lower payment from credit providers.

“In this process, the debt counsellor will obtain proof of loss of income, redo the consumer’s budget and then motivate, with proof, for a reduction in payment for a month or two. Approval of this request is at the credit provider’s discretion.

“If not approved, the credit provider can proceed with legal steps.”

Should you take a payment holiday?

A payment holiday is very unlikely to include a freeze on interest. While the monthly payment changes to zero, the interest accrues for the period and is added to the outstanding loan amount. The borrower will need to make up these repayments in the future, which could be over the remaining term.

Banks will be communicating with customers as to their options, but for those customers who opt for a payment holiday, the best option is a higher instalment after the debt holiday rather than extending the term – especially for a home loan.

For example, a three-month payment holiday on a 20-year home loan could extend your repayment period by up to two years if the instalment is not increased.

If you increase your instalments, then you will not have to extend the loan period significantly. Fortunately, we have received a rate cut, which should provide some relief.

Benay Sager, chief operating officer at DebtBusters, says that, before opting for a payment holiday, you need to understand the terms and conditions.

“A payment holiday is very good news for someone who is facing a short-term cash crunch as a result of the lockdown, but it is possible that the interest will keep running, even though payments are paused. This means that the total payment at the end of the loan term may be more than the original total.

"This does not mean it’s an option that shouldn’t be considered if you’re facing a cash crunch, as long as you’re aware that you may be paying back a bit more.”

He says that whether a leniency policy is in place or not, anyone who is struggling to make repayments should contact the lender immediately.

If they are unable to negotiate affordable repayment terms themselves or owe too much to too many lenders, they should contact a reputable debt counsellor.

To mitigate the effect of the 21-day national lockdown on workers, business and the economy, the Unemployment Insurance Fund (UIF) will be electronically processing applications for the Covid-19 Temporary Employer-Employee Relief Scheme, known as the Covid-19 Ters Benefit.

Employers who are unable to pay the full salaries of the workers they send home for their health and safety, because of the lockdown, are encouraged to apply for the Covid-19 Ters Benefit from the UIF by sending an email to covid19ters@labour.gov.za.

After doing so, applicants will receive an automated reply outlining all the steps and details, including the requirements to claim benefits.

During the lockdown period, manual claims will not be accepted, so as to reduce contact between people and curtail the spread of the pandemic.

The UIF has come up with a hotline number, 012 337 1997, for Covid-19 Ters Benefit enquiries during the lockdown period.

Workers, companies and stakeholders are urged to follow @DeptofLabour and @UIFbenefits on Twitter and visit www.labour.gov.za for regular updates.

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