By March 26, 2020, nearly half a million people in the world were infected with the COVID-19 coronavirus. Unfortunately, the pandemic did not bypass Poland.
Most schools, kindergartens, offices, and workplaces were closed during the quarantine. Many people suddenly lost their main source of income, but they have to pay back, for example, mortgage installments.
However, banks support clients in the fight against a pandemic by postponing the repayment of installments under credit holidays. Who can use them and what costs are associated with it?
Suspension of loan repayment due to a coronavirus epidemic
Due to the spreading COVID-19 coronavirus pandemic, many borrowers will not have the means to pay the loan installments on schedule. Fortunately, they can count on the suspension of this obligation. Coronavirus has forced many different organizations to rethink the possibility of postponing loan installments.
So what happens with commitments during a pandemic? Do you have to pay them back? Not necessarily, because coronavirus credit holidays are already available at many banks. This solution was recommended by the President of the Republic of Poland Andrzej Duda on March 11, 2020, i.e. on the day when it was decided to close all educational institutions for the next two weeks.
At the press conference, the president announced the introduction of credit relief for Poles due to a coronavirus pandemic. A day later, a meeting was held with representatives of the banking sector, during which details of solutions supporting borrowers were discussed.
Develop solutions that would be inconvenient for customers
It was then established that by March 16 banks would develop solutions that would be inconvenient for customers and based on remote communication. The Good Finance Investment Corporation, joining the discussion on deferment of loan installments due to a pandemic, announced that it prefers an option that will not require any statutory changes.
The Good Finance Investment (GFI) met the expectations of borrowers and presented the solutions jointly developed by 15 banks at the conference on March 16, 2020. It was a plan covering 8 different points:
- Facilitation in the maximally simplified way by banks, to the extent permitted by law, defer (suspend) the repayment of principal and interest installments of principal installments for 3 months and automatically extend the total repayment period by the same period of time provided the loan repayment period is extended.
- Banks providing assistance to entrepreneurs who had creditworthiness at the end of 2019 and were affected by the effects of the COVID-19 coronavirus pandemic and which are due to renew existing financing in the near future. At the client’s request, the financing will be renewed for up to 6 months.
- Taking action by banks that have leasing companies in their capital group to apply the deferred payment of leasing installments due from lessees – similar to deferred loan repayment.
- Deferral of repayments due from customers in connection with the use of factoring.
- Not collecting fees and commissions for accepting and reviewing applications for suspension of repayments of principal and interest installments of principal installments.
- Expressing by banks the readiness to launch the process of facilitating access to short-term credit to their entrepreneurs to stabilize the financial situation of the client affected by the COVID-19 coronavirus pandemic.
- Participation by banks in work enabling the increase in the short-term maximum amount of contactless payments to the ceiling of USD 100.
- The banks and the Polish Cashless Foundation undertake actions to install additional POS devices in places where payment transactions are carried out.
Credit holidays due to coronavirus were recommended to banks and the Polish Bank by the Polish government. GFI pointed out that banks, to the extent permitted by law, may postpone the repayment of principal and interest installments or only the principal part of the installment for up to three months at the request of the borrower.
In this case, the bank would automatically extend the loan repayment time by the same total period. Another way to deal with financial problems when paying off loan installments during a coronavirus pandemic is to use the Borrowers’ Support Fund offer.
This is a fund made up of banks – it is intended to help individuals. As part of it, you can receive up to 2,000 USD monthly repayable but interest-free loans for a maximum period of 3 years. This money is to be used to pay the installment.
What is the proposal to postpone the repayment of loan installments?
Many banks agreed with the GFI and began work on implementing the suspension mechanism. Everyone has developed their own solutions and rules for using credit holidays. Existing proposals include:
- suspension of repayment of the principal part of the installment when paying only interest with or without an extension of the loan period;
- suspension of repayment of interest installment without extending the loan repayment period;
- suspension of repayment of interest installment with the extension of the loan period by months of using the support;
- suspension of installment repayment with the extension of the loan period;
- suspension of installment repayments without extending the loan period, which will result in an increase in later installments and general loan costs.
Each of these solutions will bring different consequences to borrowers in the future when the repayment of principal and interest installments will be carried out on an earlier schedule. Credit holidays at individual banks can last from 3 to 6 months