The Reserve Bank of India, recently announced a waiver (also known as moratorium) on all term loans, including credit card dues, to ease the pressure on individuals, who have loan repayments to make, but do not have a stable income source. This was made operational pan India, for all term loan repayments, due between 1 March 2020 to 31 May 2020. That is, all loan repayments, between this period, at the option of the recipient of the loan, shall be deferred for three months.
Should you opt for it? Well, the answer depends.
How does this moratorium work?
The Reserve Bank of India (RBI) has sent out information to all commercial banks and NBFCs, regarding how the relief package has to be made operational. The general stimulus contained in the package is a delay of loan repayment by three months, along with accrual of interest.
In other words, the payment date shall get extended by three months. Such deferment shall not be free of cost: interest shall continue to accrue on the deferred payment.
For example: If a moratorium of 3 months is granted by XYZ bank, and a customer wishes to avail of this benefit, then his EMI for March, April and May 2020 gets suspended. From June 2020, the EMI restarts as per the choice opted for by the customer.
The moratorium, however, is not a compulsory moratorium. That is, in order to make it operational, the customer shall have to opt-in or accept the deferment. The banks cannot apply it compulsorily.
Please note that some banks are making it operational in different ways and allowing customers flexibility of choice: whether to retain the same EMI and extend the term or to increase the EMI with the same term or to make increased interest payment at the end of the term. One would also have the option to continue with the repayments or EMIs, as before.
So, should you opt for this moratorium?
The answer would completely depend on whether you’re willing to make the EMI payments as before, given that incomes are affected with the COVID-19 lockdown. In case you do have sufficient funds to make the payments, despite the lockdown, we would recommend continuing the EMI payments.
Why do you recommend making the EMI payments on time?
Since opting for the deferment or the moratorium, shall entail interest costs. In other words, the interest applicable on your outstanding amount shall continue to accrue, on both the interest as well as the principal part of the outstanding amount. For example, if your loan outstanding is Rs. 1,00,000 and the interest payable is 12% p.a., then after three months, the additional interest shall be Rs. 3,030.10.
Therefore, in case, it is not possible to make the current EMI payments on time, only then the moratorium scheme should be opted for.
Will opting for the moratorium scheme have any adverse effects for my loan/ credit score?
The RBI has asked banks to ensure that the credit rating of customers, opting for the moratorium does not get affected. Also the banks will ensure that no penal interest is charged in case a customer opts for the moratorium scheme.
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