Posted on 14 July 2021

How to pay your Bounce Back Loan

Posted in Advice

Read time: 4 minutes

During the Coronavirus Pandemic, the government introduced the Bounce Back Loan Scheme to help small and medium-sized businesses whose businesses were adversely affected by the situation.

When will my Bounce Back Loan repayments commence?

Having taken a government backed loan, you received a payment holiday for the first year of that loan, with the interest being paid for by the government through a Business Interruption Payment. After the first 12 months, you will need to start making monthly repayments to repay the amount you borrowed, plus interest from the date your repayment holiday ends.

You’ll pay less if you pay back early

If you no longer need the loan, you can choose to pay it back early, which means you'll then pay less interest. There are no early repayment charges and you won’t pay any interest if you pay the full amount before the end of your initial 12-month repayment holiday.

If you wish you can make an additional one-off repayment of any amount or additional payments on a regular basis while repaying the loan. If you do this it will help save you money on your interest payments.
Your Pay As You Grow (“PAYG”) repayment options.

The government has announced PAYG options for Bounce Back Loan borrowers to help businesses get back to regular trading. PAYG will give you more time and flexibility to pay back your loan but increase the amount you have to repay. You will be able to choose PAYG options from three months before your first repayment date and lenders will already have contacted many borrowers about this.

Using these options will not affect your credit score, or negatively affect your credit file. Lenders may use requests to take advantage of PAYG to help them assess affordability in future unconnected lending applications by taking into consideration incomings and outgoings, and also your total debt, which will include the outstanding Bounce Back Loan payments.

The PAYG options are as follows:

1. If you expect to be in a better position to repay in the future:

1.1 You could reduce your monthly repayments for 6 months by paying interest only.
The effect of this is as follows:

On a loan of £50,000 this would reduce monthly payments by about £830 per month during the six month period.
You’ll pay more interest overall, so the total amount repayable on a £50,000 loan would increase by about £520 (unless you repay early).
You’ll have the choice to extend your loan term for an additional six months if you take this option but your interest costs will increase. If you keep your original loan term a larger amount of your loan is outstanding for longer and if you extend your loan term by six months, you're repaying your loan over a longer period.
This option is available up to three times during the term of your Bounce Back Loan.

1.2 You could take a payment holiday for 6 months.

The effect of this is as follows:

You’ll make no capital repayments or interest payments during this period.
The total amount you owe will increase. This is because your interest costs will increase as interest accrues during the payment holiday and so the total amount repayable on a £50,000 loan would increase by around £670.00 (unless you repay early). You’ll have the choice to extend your loan term for an additional six months if you take this option but the total amount you owe will go up. If you retain your original loan term a larger amount of your loan is outstanding for longer and if you wish to extend your loan term by six months, you're repaying your loan over a longer period.
This option is available once during the term of your Bounce Back Loan.

2. If you can only repay a smaller amount each month:
You can request an extension of your loan term from 6 years to 10 years.
The effect of this is as follows:

Extending your loan term to 10 years would reduce your first repayment (at month 13) on a loan balance of £50,000 by about £340.
You’ll accrue more interest, so the total amount repayable on a £50,000 loan (capital plus interest) would increase by approximately £2,500.00 (unless you repay early).

If you’re considering this option, you should think carefully about your ability to repay over a longer timeframe, this will include taking into account such things as if you intend to stop trading or retire within the revised term of your Bounce Back Loan.

You can use options 1 and 2 together if you need to. Both options 1.1 and 1.2 will be available throughout the course of your loan term.

If you accept a PAYG option or options the amount of interest you will pay will increase.