> For the complete documentation index, see [llms.txt](https://docs.xyb.co/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.xyb.co/credit/create-and-manage-contracts/manage-credit-contracts-and-terms/how-to-configure-a-payment-holiday.md).
# How to Configure a Payment Holiday
A **payment holiday** allows a borrower to pause either the **principal**, the **interest**, or both components of their repayment for a defined number of months. This is useful in scenarios like short-term hardship, onboarding promotions, or grace periods.
To do this, you simply create a new term that starts from the month you want the holiday to begin. In that term, set how many months to skip principal, interest, or both.
1. **Add a New Term:** Go to the contract page, click **+New term**, and select **Payment holiday** from the dropdown.
2. **Select the Start Date:** Choose the date when the payment holiday should begin. For example, if **today is 10 December** and the customer’s **next regular payment date is 1 January**, select **1 January** as the start date of the payment holiday.
3. **Define the Pause Duration:** Now decide how many months to pause **principal** or **interest** repayments, and update the fields:
* **First principal payback period -** number of months to skip principal payments.
* **First interest payback period -** number of months to skip interest payments.
#### How Skipped Payments Are Handled
* If interest payments are skipped, all accrued interest during the payment holiday period is added to the first interest invoice after the holiday ends.
* If principal payments are skipped, the outstanding balance is amortised across the remaining payment periods after the holiday.
#### Examples:
**Example 1: Pause principal for 1 month (pay interest only)**
* Start date: January 1st
* First principal payback period: **1**
* First interest payback period: **0**
Result: January will have no principal payment, but interest will be paid. Regular principal resumes in February.
***
**Example 2: Pause both principal and interest for 2 months**
* Start date: January 1st
* First principal payback period: **2**
* First interest payback period: **2**
Result: No payments are made in January or February. All accrued interest during the payment holiday period is added to the first interest invoice after the holiday, and repayments resume in March.
***
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