Guide to forbearance

Published on: August 28, 2024 Last updated: August 28, 2024 Reading time: 8 minutes

If you’re finding it difficult to meet your repayments, your lender may agree to put some special measures in place to help you. This is known as forbearance.

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What is forbearance?

In financial terms, forbearance means that an FCA regulated lender has a duty to provide you with additional support if:

you are struggling to meet your payments or;
you think it’s likely that you will struggle to meet them in the very near future.

Forbearance – A Background

During the Coronavirus Pandemic in 2020, the Financial Conduct Authority (FCA) published guidance to support customers who were facing payment difficulties that had resulted from circumstances related to COVID-19. This applied to:

Credit Cards (including retail revolving credit)
Personal Loans
Rent-to-own, buy-now pay-later and pawnbroking agreements
Motor Finance Agreement
High-cost short-term credit agreements
Mortgages
Overdrafts

The FCA set out expectations for regulated lenders to provide support to customers who were experiencing financial difficulty.

In November 2024, the existing guidance will become new FCA rules that form part of existing regulations in place for financial sectors.

What would be classed as an FCA regulated product?

Credit Cards (retail revolving credit)	Regulated by the FCA
Personal Loans	Regulated by the FCA
Rent-to-own, buy-now pay later and pawnbroking agreements	Regulated by the FCA, except buy-now pay-later if the product is 0% interest under 12 months
Motor Finance	Regulated by the FCA
High-cost short-term credit agreements	Regulated by the FCA
Mortgages	Regulated by the FCA and the Prudential Regulation Authority (PRA)
Overdrafts	Regulated by the FCA

If you’re unsure if your provider is regulated by the FCA, you can check this on the Financial Services Register.

What are lenders required to do?

Under FCA rules and guidance, there are certain things that lenders must do, in relation to forbearance.

They are required to:

Support you and be pragmatic and flexible in approach.
Offer tailored support that is specific to your circumstances – rather than a ‘one size fits all’ approach.
Communicate with you and make it clear that support is available, if it’s needed.
Make sure that if an arrangement is put in place, it does not affect your ability to repay your priority bills.
Make sure that the balance of your debt does not increase once you’re in a forbearance arrangement.
Make sure you’re given some time to consider your options and seek debt advice first if you feel like you need it.

If your agreement is for an FCA regulated product, and your lender does not comply with the above, you have the right to raise a complaint with the company directly.

If you do not receive a final response within 8 weeks, or you’re unhappy with the response, you can contact the Financial Ombudsman Service. Sometimes this can be a lengthy process, due to current backlogs.

What types of forbearance are available?

There are different types of forbearance that are available. The options you may be given will vary depending on the lender. We’ve listed some examples of them below.

Type of Forbearance	What does this mean?	Who should I contact about this option?
Payment Arrangement	If you are in arrears, you may be able to set up a payment arrangement to spread the amount across a few months. This payment will usually be made in addition to your standard monthly repayment. You’ll be asked to complete an income and expenditure form to make sure you can afford the payments.	Speak to your Lender directly
Reduced Payment Arrangement	If you are unable to pay your normal monthly repayment, you may be able to agree to pay a lower amount towards the debt. You’ll be asked to complete an Income and Expenditure form before an arrangement can be made. This is to make sure you can afford to make a payment. A reduced payment arrangement will show on your credit file.	Speak to your Lender directly
Token Payments	You may be able to make a small payment to creditors if you’re in financial difficulty. This shows a willingness to repay your debts, even if you can only afford a small debt. A token payment will show on your credit file.	Speak to your Lender directly
Payment Holiday/Payment Deferral	You may be able to temporarily stop payments towards your debts. Sometimes the payments will be added to the end of the agreement, and interest is likely to still build during this time. A payment holiday/deferral will show on your credit file.	Speak to your Lender directly
Arrears Communication Pause	The lender may agree to stop sending you communication about the debt owing – this means you won’t receive telephone calls, or e-mails for a period of time. This does not stop your payments from being taken. You may also still receive regulatory communications. These are communications that the business is legally required to send you.	Speak to your Lender directly
Freeze Interest and Charges	The lender may agree to reduce, waive or cancel any interest or charges. This is a way of ensuring that the balance of debt does not increase when you’re already in financial difficulty.	Speak to your Lender directly
Promise to Pay	The lender may agree to place a temporary pause on the account if you confirm you are able to make the payment on the account on a set date. If you don’t make the payment by this date, the agreement will usually go back into the collections cycle.	Speak to your Lender directly
Extend the term	You may be able to extend the term of the agreement. This would reduce your monthly payments as the outstanding balance would be spread over a longer period of time. This can mean you’ll pay more interest for longer though.	Speak to your Lender directly
Change the type of agreement (Mortgages only)	You may be able to change from a capital and interest mortgage to an interest-only mortgage for a period of time. This means that your monthly payments would reduce. This is a temporary measure and will mean that you may end up repaying a higher amount overall.	Speak to your Mortgage Lender Directly
Signposting	The lender may direct you to specialist organisations that can help you. This will usually happen if it is clear you are unable to afford to make a payment, or a debt solution may be a better option, based on your current circumstances.	Speak to your Lender Directly

Are there any alternative options to forbearance?

Debt management solutions

If your circumstances are more likely to be longer lasting, a debt management solution might be a better solution to help you.

It might be worth seeking some free debt advice before deciding what option to take - Some options are only available through debt advice organisations.

The main debt management solutions currently available in the UK are:

Debt consolidation

Debt consolidation is a way of combining all your debts into one monthly payment with one lender. You can do this with a debt consolidation loan. It can make your repayments more manageable. Plus, if your loan has a lower interest rate, you could save money overall.

Debt settlement

With full or partial debt settlement, you ask your creditors to let you pay a lump sum towards your debt.

This can either be the full amount, which means the debt is settled. Or it can be a lump sum that is smaller than the amount owed (a partial settlement). In return for the lump sum, your creditor writes off the rest of the debt, meaning you don’t need to pay it.

You might be able to do this if you have sold an asset such as a car, or if you’ve received money from friends or family. It’s best to seek debt advice before choosing this option.

Key things to consider before seeking forbearance

Before you ask a lender about forbearance, ask yourself the following questions:

Do you have a plan for making your repayments on time once forbearance is over? Remember that your repayments could increase in size or be spread out over a longer term, or you could pay more interest overall.
Would a forbearance arrangement affect your ability to repay your priority bills? If so, does this mean you need some longer-term support?

To help you decide if it’s the right choice, here’s a quick recap of the pros and cons of forbearance:

Pros	Cons
May provide temporary relief from making repayments, giving you time to get back on your feet	Not a long-term solution.
May reduce the risk of defaulting on your loan and late payment fees	Interest may still be charged and added to your balance. You may also end up paying more interest.
Can give you some flexibility with your finances	Most forbearance options will appear on your credit report and affect your credit score

Forbearance: FAQs

Will forbearance affect my credit score?

Most forbearance options will usually be recorded on your credit report in the UK. This can have a negative impact on your credit score and make it harder for you to take out credit in the future. It’s worth asking your lender how forbearance will show up on your credit report.

Can I still use credit cards during forbearance?

You can still use credit cards during loan or mortgage forbearance. But it’s generally best to avoid building up more debt when you’re trying to pay off existing debts.

Are there any tools I can use?

Moneyhelper has some practical tools that can be used to help you to become more in charge of your finances. We’ve listed them below.

Conclusion

If you’re struggling to keep up with repayments, speaking to your lender about forbearance can provide some temporary relief. However, this is only a short-term solution. If your financial situation is more serious, you should consider if other options would be better for your circumstances.

Debt counselling charities such as StepChange and Citizens Advice can provide tailored support to help you find the best solution for you.