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Definition
During a payment holiday, you pause repayments, but interest almost always continues to accrue and is usually capitalised onto the balance. So the loan grows during the break, and either the term extends or later payments rise. A holiday relieves cash flow but adds to total cost.
In plain terms
A break from paying is not a break from the meter running. You will pay for the holiday later, with interest on the interest.
Why it matters for your company
Take a payment holiday as considered relief, not free time — and ask exactly how the deferred interest is handled. See capital repayment holiday.
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