Should I Repay a Bounce Back Loan over 6 Years or 10 Years?

Debt Advice

Bounce Back Loans were government backed loans for small and medium businesses and sole traders, launched to help business owners during the COVID-19 pandemic.

The loans were offered with a standard loan term of 6 years, with the option of extending to 10 years, which was introduced under the Pay As You Grow scheme.

It is vital you know how to extend your Bounce Back Loan if necessary.

Can I extend my Bounce Back Loan?

You can extend your Bounce Back Loan (BBL), but there are a few factors which you should be aware of.

All BBL extensions will have the same fixed rate interest rate of 2.5% applied to the life of the loan. However, choosing to extend will mean the amount you will actually pay in interest over the duration of the borrowing will be increased.

This is because the interest will be charged on the balance for 10 years rather than 6 years.

Depending on the amount borrowed, this could mean you repay several thousands of pounds more by choosing to extend the loan.

For some, extending the term of the loan may be hugely beneficial from a cash flow perspective. By extending the payments to 10 years, the monthly repayments will be almost half of what they are under a 6 year term.

This difference could make a massive difference to companies, meaning they will have the ability to keep up with repayments in an affordable way.

How long do I have to repay my Bounce Back Loan?

BBL loans last for 6 years, meaning you have six years to pay the monthly instalments.

No repayments are due during the first 12 months of the loan, and before you make the first payment, you have the option to extend your loan to 10 years.

You can also move to interest-only repayments for six months, up to three times, or pause repayments for six months, which you can only do once.

Should I repay my Bounce Back Loan early?

If you no longer need the loan, you can choose to pay it back early, which means you will be paying less interest.

Alternatively, you can make a one-off repayment of any amount, as well as additional repayments on a regular basis.

Doing this will help to save you money on your interest payments.

Is there an early repayment charge on a Bounce Back Loan?

There are no early repayment charges for a Bounce Back Loan, and you won’t pay any interest if you pay the full amount before the end of the initial 12 month repayment holiday.

What is the Pay As You Grow (PAYG) Scheme?

The UK government introduced the Pay As You Grow scheme for BBL borrowers to help get businesses back to normal trading.

PAYG gives more time and flexibility to paying back your loan.

You will be able to choose PAYG options 3 months before your first repayment date. Using these options won’t affect your credit score or negatively impact your credit file.

PAYG options

The PAYG options are as follows:

If you expect to be in a better position in the future, you could:

Reduce your monthly repayments for 6 months by paying interest only.

For example, on a loan of £50,000, this would reduce the monthly repayments from £939.49 to approximately £106.16 during the 6 month period.

You’ll pay more interest overall though, meaning that the total amount repayable on a £50,000 loan will increase from £54,431.60 to £55,056.94, unless you repay early.

You will 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 large amount of your loan will be outstanding for a longer period and if you extend your loan term by 6 months, you will be repaying your loan over a longer period.

This option is available up to three times during the term of your BBL.

Or,

Take a payment holiday for 6 months.

You won’t make any capital repayments or interest payments during this time, but the total amount you owe will go up. This is because your interest rates will increase as the interest accrues during the payment holiday.

This would make the total amount payable on a £50,000 loan increase from £54,431.60 to £55,100.49, unless you repay early.

You will have the option 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 will be outstanding for longer, and if you wish to extend your loan by 6 months, you will be repaying over a longer period.

You can only use this option once during the term of your BBL.

If you can only repay a smaller amount each month:

You could request an extension of your loan term from 6 years to 10 years, at the same rate of 2.5%.

For example:

Extending your loan term to 10 years would reduce your first repayment on a loan balance of £50,000 from £939.49 to £569.12.

You will accrue more interest, making the total amount repayable on a £50,000 loan increase from £54,431.60 to £56,933.31, unless you repay early.

Can I pay back a Bounce Back Loan over 10 years?

Yes, you can extend your repayment term for a BBL from 6 to 10 years, 3 months before the end of the initial 12 month repayment holiday.

By paying back over a longer period of time, you will be able to bring your monthly repayments down.

However, it is worth considering where you will be in 10 years. If retirement is on the cards, it’s not worth extending the loan.

Remember, it’s only 6 or 10 years, meaning you wouldn’t be able to repay over 8 years for example.

What happens if you extend your Bounce Back Loan?

If you choose to extend your BBL, you will be repaying back monthly over a 10 year period instead of a 6 year period.

Paying over a 10 year period may be better for your business, as it will bring the monthly repayments down, almost half of what they would be for a 6 year term repayment period.

Can Bounce Back Loan repayments be delayed?

Yes, you can delay your repayments for six months, but you can only do this once during the term of the BBL.

This is on top of the 12 month holiday repayment which is given when the BBL is taken out. You do not need to have made any repayments towards your BBL in order to qualify.

Will my Bounce Back Loan ever be written off?

No, companies cannot write off a BBL. You can negotiate with your lender to increase the repayment period from 6 years to 10 years and take a payment holiday, but it will not be written off.

The only way a BBL is written off is if the company enters a state of formal insolvency, such as Liquidation. During Liquidation, a BBL turns into an unsecured debt and will be written off.

Read our guide on what to do if you can’t pay your Bounce Back Loan off for more advice in this area.

Should I extend my Bounce Back Loan?

All extensions of BBLs will have the same interest rate of 2.5% applied to the life of the loan.

However, whilst the interest rate stays the same, the amount you will pay in interest for the duration of borrowing will be more if you choose to extend your repayment terms. This is because you will be charged with the balance of 10 years rather than 6.

This is something to consider when you are deciding on whether to extend your loan or not. You may need to consider where you will be in 10 years time, and how you may expect the business to look.

If you are unsure whether to extend your loan, you can talk to one of our professional team members today at The Insolvency Experts.

How do I extend my Bounce Back Loan to 10 years?

If you are wishing to extend your BBL to 10 years, you can request an extension from your loan provider 3 months before the end of the 12 month repayment holiday.

If you have already started paying for the 6 year term, you may be able to negotiate a change to 10 years instead if you believe you cannot keep up with the repayments.

What do I do if I can’t repay my Bounce Back Loan?

If you are having issues repaying your BBL, or fear you may encounter difficulties in the future, it is imperative that you seek expert guidance at the earliest point possible.

At The Insolvency Experts, our team of expert advisors are here to provide you with the help and advice you need during challenging financial times. We will take the time to assess your situation and help you understand all the options open to you.