The real cost of payment holidays in South Africa

Many South Africans first heard about payment holidays during the Covid-19 pandemic, when banks and lenders offered them as short-term relief to customers in financial trouble. A payment holiday in South Africa is still offered today by some lenders under specific conditions.

Because this type of arrangement isn’t mentioned in the National Credit Act, lenders grant payment holidays at their discretion.

Each agreement is unique and depends on your creditor’s specific lending rules. That’s why it’s important to understand the real cost of payment holidays before committing to one.

What is a payment holiday?

A payment holiday – sometimes called a payment break – is an agreement between you and your credit or loan provider that lets you pause debt repayments or reduce repayments for a predetermined period. It doesn’t cancel your debt – it simply postpones payments for a short time.

When are payment holidays offered to customers? 

Lenders offer payment breaks to customers when they’re facing temporary financial setbacks, such as:

• Retrenchment or job loss
• Serious illness or a medical emergency
• Unpaid maternity leave
• A major family crisis
• A natural disaster
• Other unexpected events that lead to loss of income

Because payment holidays are at their discretion, lenders might ask for proof of income loss, for example, a retrenchment letter, medical records, proof of unpaid leave, or other documentation that shows your hardship is temporary.

However, they are only offered to customers who are up to date with their payments.

If you’re feeling overwhelmed by your debt, it may help to explore more structured and sustainable debt solutions.

How a payment holiday works

A payment holiday can give you short-term relief if you’re struggling to keep up with your loan repayments.

• You can pause debt repayments for an agreed period, usually one to three months.
• Interest during the payment holiday – and possibly fees – continues to accrue on your loan during this time. You still owe, often more than before the break.
• When the holiday ends, you need to resume payments, often with higher monthly instalments and over a longer term.
• In some cases, lenders may set up a new debit order for the adjusted payments. This helps you stay on track and avoid additional penalties.

Because interest and fees accumulate, a payment holiday is best treated as short-term assistance, not a strategy to wipe out debt.

How long can you pause repayments?

In South Africa, payment holidays are usually short – about one to three months.

Some lenders may grant longer, more flexible relief, but this isn’t the same thing as a standard payment break – and you’d need to negotiate this separately.

Because each lender has their own policy, there are no guarantees. A payment holiday isn’t an automatic right, and you must apply and be approved before you’re granted relief.

Before you agree to a payment holiday, it’s worth comparing other debt solutions and understanding all your options.

Are payment holidays worth it?

A payment holiday can help, but only under certain conditions.

It works best when you need immediate help but expect your income to recover soon. It provides breathing space during a crisis.

If you come to an agreement with your lender, get this in writing and make sure you have a plan to resume regular payments.

There are some downsides to payment holidays, for example:

• Interest and fees will keep on accruing, pushing up the total amount owed.
• Your loan term could be extended, or monthly instalments may go up, making repayment harder in the future.

Let’s say you owe R50,000 on a loan at 12% per year and take a three-month payment break. The longer the break – or the higher the interest rate – the higher the extra cost. A payment break might cost you roughly R500 extra for each skipped month (or more), and for a six-month break, that could add up to R3,000 (or more, depending on how interest and fees are calculated).

Short-term relief vs long-term cost

A payment holiday is not a long-term solution.

It’s important to weigh up short-term relief against the real cost of a payment holiday before you decide to approach your lender, for the following reasons:

Extra interest keeps adding up

As indicated, even when you stop paying instalments, your loan doesn’t just disappear.

Interest during a payment holiday continues to build, increasing your total debt. This can add further pressure if you’re struggling to repay debt at the end of each month.

Your loan term gets longer

You may end up paying over a longer period, or with higher monthly repayments, which can stretch your budget.

Ask your lender for a detailed repayment schedule showing the total cost and new monthly instalments before you agree to the payment holiday. Understand exactly how much you’ll owe after you skip instalments and what your new instalments will be.  

Impact of a payment holiday on your credit score

In most cases, if you and your lender agree to a payment holiday and they report it correctly to a credit bureau, it should not hurt your credit score.

However, if your lender fails to flag the account correctly, the break could show up as a missed payment, which could harm your credit status.

Note that if you continue to skip instalments once the payment holiday is over, your credit score may be negatively affected. This can impact your ability to take out loans in the future and receive better interest rates.

If your credit record is already under pressure, you may benefit from getting help sooner rather than later.

Who qualifies for a payment holiday and how to apply

Anyone can ask for a payment holiday in South Africa, but lenders usually grant them only if you can prove financial hardship and that your situation is temporary.

You must be up to date with existing payments. If you skip instalments, you’ll be viewed as a high-risk applicant and may not be eligible.

How to request a payment break

Requesting a payment break is a formal process – you can’t simply stop paying or cancel your debit order. Here’s how you can go about it:

• Contact your lender before you fall behind on payments – don’t just stop paying. Lenders need to officially confirm the break.
• Ask which department handles payment breaks. Lenders use different terms for a payment holiday, so ask if short-term credit relief is an option for temporary financial hardship.
• Prepare documentation, for example, retrenchment letters, medical reports, or proof of unpaid leave.
• Provide your lender with a copy of your ID, the details of your loan, bank statements, and payslips to indicate your current financial situation.
• Once approved, get the agreement in writing and make sure the terms are clear (the length of the break, how interest and fees will accrue, and what will happen when payments resume).

Note that you shouldn’t cancel your debit order yourself. Let your lender update the schedule so your cancellation is not treated as a default.

Why your application might be declined

Your application may be declined for several reasons, including the following:

• You can’t demonstrate genuine financial difficulty – for example, there’s no evidence of reduced or lost income.
• Your lender determines you can still meet repayments and may propose another solution to a payment holiday.
• Your account is in arrears and not in good standing. A poor repayment history and impaired credit score may reduce your chances of approval, in which case another form of debt support may be more appropriate.

If your lender declines your request for a payment holiday, there are still ways to get help managing your debt, including structured options like debt counselling.

What you can do instead of taking a payment holiday

A payment holiday isn’t your only option. Some alternatives can help you stay on track without the added cost and long-term impact of pausing or skipping instalments.

Cut back on non-essential spending 

Tighten your budget and make debts and essential spending a priority.

Pay interest only

Ask to pay interest only – some lenders may allow this and keep your balance stable until you’re back on your feet.

Once your finances recover, you can resume full instalments without a significant increase in total debt.

Talk to your credit provider

Negotiate a term extension or a restructured payment plan. Sometimes extending your loan is a less costly form of relief than skipping payments altogether.

Consider debt counselling

If keeping up with multiple repayments feels overwhelming, a payment holiday will not solve the problem.

Debt counselling can help you take control of your debt and create a manageable plan. Let’s explore how it works and what it could mean for you.

If you’re feeling debt-stressed, have a look at our Money Stress Tracker to understand your risk levels.

What is debt counselling and how does it help?

The National Credit Act of 2007 formally introduced the process of debt counselling as a legal, regulated solution for South Africans who are overindebted.  

If your debts and living expenses exceed your income, a registered debt counsellor can assess your finances and negotiate with your creditors to reduce interest rates and restructure repayments into a single, affordable monthly instalment.

Importantly, debt counselling doesn’t automatically provide a payment holiday. You are still expected to make payments. However, in some cases, a debt counsellor may negotiate short-term payment relief or reduced instalments with credit providers as part of the restructuring process.

Unlike informal payment holidays, any relief granted under debt counselling is legally binding and protected under the National Credit Act, offering consumers long-term stability rather than temporary relief.

How debt counselling in South Africa works

The debt counselling process involves several key steps:

• Contact a registered debt counsellor – make sure they are accredited and experienced.
• Have your finances assessed – the counsellor will review your income, expenses, and debts.
• An over-indebtedness decision will be taken – if your monthly debts and expenses exceed your income (or you’re close to that point), you’ll be approved for debt counselling.
• Notification to creditors – the counsellor will inform your lenders about your situation.
• Receive your new repayment plan – a manageable payment plan is negotiated so you can pay off your debts affordably.

To get started, you can contact DebtBusters directly to discuss debt counselling.

How long debt counselling lasts

How long you stay under debt counselling depends on the amount of debt you have.

Usually, the process takes about three to five years – and in some isolated cases, six years. During these years, you’ll pay the amount you’re comfortable with, and creditors may not contact you directly for payment.

If you can settle all your non-home-loan-related debts early, you can exit debt counselling earlier than this and ask for a clearance certificate that indicates you have completed debt counselling.

What happens when you complete debt counselling

When you complete the debt counselling process, you’ll receive a clearance certificate proving that all debt included in the debt counselling contract has been paid off.

You’ll also gain the ability to manage your money more effectively and can begin rebuilding your credit score over time. This will help you access credit in the future.

For many South Africans who are already debt-stressed, debt counselling is a safer, more structured option than relying on payment breaks.

FAQs

Does a payment holiday affect my credit score?

A payment holiday can affect your credit score, depending on how your lender reports it to the credit bureaus. When the arrangement is recorded correctly, it shouldn’t harm your score, because you’re not skipping payments – you’re following a revised agreement. In some cases, the pause may even help you avoid missed instalments, which protects your credit record.

Is a payment break the same as debt counselling?

No. A payment break and debt counselling are very different. A payment holiday is a short-term arrangement with a single lender, typically lasting one to three months. Debt counselling is a formal legal process under the National Credit Act that restructures your debt when you can no longer manage your obligations. It offers long-term relief, legal protection, and negotiated lower instalments.

What happens if I can’t afford payments after a payment holiday?

If you can’t afford your instalments once the holiday ends, you may fall behind on payments. This can damage your credit score, and creditors may attempt to recover the debt. You should contact your lender immediately and ask about alternative arrangements. If you can no longer manage your debts, consider debt counselling.

When should I choose debt counselling instead of a payment holiday?

Consider debt counselling when your financial difficulties are not temporary and you’re unable to manage multiple debts. If your monthly debts and living expenses exceed your income, only debt counselling will provide you with the debt relief you need.

Making the right decision for your debt

A payment holiday can offer valuable relief during a short-term setback, but it comes with costs, most notably higher total interest. It works best when you’re confident your income will recover quickly.

If your financial strain is ongoing, you’re managing several debts, or you’ve already used a payment holiday and still can’t keep up, it may be worth considering a more structured solution. Debt counselling provides legal protection, lower consolidated instalments, and a clear plan to become debt-free.

If you’re unsure which option is right for you, speak to a DebtBusters consultant today.