Payment holidays vs loan prepayment

Payment holidays and prepayment are two different tools. The first gives temporary relief in monthly instalments, the second reduces interest cost. Which is better depends on your contract and financial situation.

What payment holidays are

Payment holidays are a temporary suspension of instalments. The rules may follow a statutory program or the bank’s policy, so eligibility conditions can apply and the option may not be available to everyone. The key is what is suspended: principal only or also interest, and whether the loan term is extended.

How payment holidays affect total cost

In most cases interest still accrues and the total cost increases. The term may be extended or future instalments may be higher. That is why payment holidays are not “free savings” but a shift in time.

Prepayment during payment holidays

Prepayment reduces principal and therefore interest. Even if you use payment holidays, check whether you can prepay and under what conditions. Many borrowers use holidays to build a buffer and then make a one‑off prepayment.

Comparison: when to choose what

• Payment holidays — when you need short‑term budget relief.
• Prepayment — when you have surplus funds and want to cut interest cost.
• Combination — when you stabilize liquidity first and prepay later.

For hard numbers use the Loan overpayment calculator.

Practical scenarios

Scenario A: rising living costs, no buffer. Holidays can provide breathing room, but plan a future prepayment.

Scenario B: stable income and surplus. Prepayment usually wins because it lowers total cost faster.

Decision checklist

• verify what exactly is suspended in your contract,
• compare total cost in “holidays” vs “prepayment” scenarios,
• check if the bank charges prepayment fees,
• keep a 3–6 month safety buffer,
• choose: lower instalment or shorter term.

Most common mistakes

• treating holidays as free profit,
• prepaying at the cost of liquidity,
• skipping total cost comparison,
• ignoring fees and contract clauses.

How to calculate profitability

Compare total cost in two variants: with holidays and with prepayment. Use the Loan overpayment calculator and the guide: Mortgage overpayment — is it worth it.

See also

• Mortgage instalment — how to calculate
• Mortgage interest rate
• Mortgage refinancing

Sources

• Mortgage credit act (ISAP)
• Consumer credit act (ISAP)
• UOKiK — consumer rights