Finance glossary
Payment Holiday
Also known as: Payment deferral, Payment break
In simple terms
A payment holiday is an agreed break from making payments on a loan, mortgage or card. It can ease short-term pressure, but interest usually keeps building so you pay more overall.
On this page
What does payment holiday mean?
A payment holiday is a period where a lender agrees you can pause or reduce your payments, often because of temporary financial difficulty. It must be agreed with the lender — simply not paying is a missed payment.
Some products build in optional payment holidays; others are arranged case by case as forbearance.
How a payment holiday works
During the break you pay nothing or less than usual, but interest normally continues to accrue on the outstanding balance. Afterwards, payments may rise, or the term may be extended, to make up the difference.
Whether it is reported on your credit file depends on the arrangement; agreed forbearance is treated differently from missed payments, so ask the lender how it will be recorded.
How could this affect me?
A payment holiday can be a useful short-term breather, but because interest keeps building it increases the total cost and can raise future payments. It is best used for genuine temporary problems, not ongoing shortfalls.
If your difficulties are longer-term, a debt adviser can help you find a more suitable solution.
Things to watch out for
- Interest usually keeps building, so you pay more overall.
- Payments may rise afterwards, or the term be extended.
- Check with the lender how it will be reported to credit agencies.
Know your rights
- Under FCA rules, lenders must treat customers in financial difficulty fairly and consider appropriate forbearance, which can include deferring payments.
- You can complain and escalate to the Financial Ombudsman Service if treated unfairly.
General information, not personal advice
Consumer Credit is an independent information service. We do not provide regulated financial advice or sell financial products. For advice on your own situation, speak to an appropriately authorised firm or a free service such as MoneyHelper. About Consumer Credit.
Sources
We checked this page against these official and authoritative sources.
- MoneyHelper, Dealing with debt — talking to creditors (opens in a new tab). Accessed 22 Aug 2026.