Will a payment holiday cost me more overall?

2 min read

Payments pauseInterest usually doesn't

Costs more overallAccrued interest added

Term or payment risesTo absorb the pause

Relief toolUse when needed

What a payment holiday does

A payment holiday lets you pause repayments for an agreed period — a genuine lifeline through a temporary cash-flow crunch. But pausing the payments does not pause the debt. In almost all cases interest continues to accrue on the outstanding balance through the holiday, so the loan grows slightly rather than standing still while you are not paying.

Where the extra cost lands

When the holiday ends, the paused payments and the interest that built up have to be absorbed. Lenders usually do this in one of two ways: raise the monthly payment for the rest of the term, or extend the term so the payment stays similar but you pay for longer. Either way, the total repayable rises. A holiday is not free money — it is deferred cost, and the deferral itself carries interest.

Using a holiday well

Despite the cost, a payment holiday can be exactly the right move when the alternative is a missed payment and arrears. Keeping the account healthy through a short, genuine squeeze is worth a modest extra cost. What matters is using it deliberately: understand how much it will add, confirm whether it extends the term or raises the payment, and have a plan for when normal payments resume. See how to get a payment holiday.

If cash-flow pressure is more than temporary, read what to do if you can't repay and consider a fuller restructure.

Frequently asked questions

Does interest stop during a payment holiday?

Almost never — in most agreements interest continues to accrue on the balance throughout the holiday. That accrued interest is added back when payments resume, which is why a holiday raises the total cost. Always confirm with the lender exactly how interest is treated during the pause before agreeing to it, so there are no surprises when normal payments restart.

Is a payment holiday better than missing a payment?

Yes, decisively. An agreed payment holiday is a planned variation that keeps the account in good standing, whereas simply missing a payment triggers arrears, fees and a credit-file mark. If you can see a squeeze coming, arranging a holiday in advance is far better for your cost, your record and your relationship with the lender than letting a payment fail.