RBI Moratorium News For Personal loan Borrowers on EMI

The pandemic caused a lot of chaos in people’s daily lives and the country’s financial market. The Reserve Bank of India (RBI) made a decision about the lack of liquidity that personal loan borrowers might face amid the nationwide lockdown. RBI allowed banks and financial institutions to offer a three-month moratorium on term loans and credit card bill payments. However, the moratorium is only an option to defer or postpone your EMI repayment. It does not mean the interest on the loan during this period is canceled or waived off.

The moratorium period is for all payment of instalments falling due between March 1, 2020 and May 31, 2020. On availing the moratorium facility, the interest will continue to accrue or get added to your principal outstanding amount. Then, from June 2020 onwards, when you restart your EMI, your interest will essentially be calculated on the higher principal amount. Moreover, keep this in mind while deciding if you want to opt for the EMI. If you have Flexi loan or other multiple loans, you can calculate and decide on which of your loans you want to avail of the moratorium benefit.

Impact on Loans

The moratorium period will be applicable on all term loans, including retail loans, home, car, personal loan, and credit card dues. However, banks and lending institutions are yet to formalize the operations. Borrowers can get in contact with their respective bank or lending institutions to avail of this deferment.

A moratorium is not an interest waiver and it should be treated as a breathing period for borrowers, it is better to pay your EMIs instead of letting your funds idle away in a savings bank account that yields 3.25-4 percent interest on the loan amount.

The central bank has made it clear that the interest rate will continue to accrue during the moratorium period. There will be a levy of interest at the contracted rate of the loan for the period of EMI moratorium on the loan outstanding. Also, the Interest on loan will be applicable for the no-cost EMI consumer durable loans too for this moratorium period.

Read more about Impact of Moratorium on Future Personal Loan EMIs

Impact on Credit Cards

The interest rate on credit cards is higher since it is an unsecured loan. As per the RBI rules the credit card dues will be covered under the moratorium flexibility period. However, it has been clearly stated by them that the credit card payment dues will continue to accumulate interest on the loan amount during the moratorium or until the bills are cleared. For personal loans, the interest charged is excessive upwards of 40 percent per annum. Ensure that the EMI payments are cleared on time or the interest rate on loans accrued on your credit card bill would keep growing to an unmanageable amount.

Advantages of the Moratorium Period

• The moratorium period offers some respite in case of a financial emergency. You can stop your loan repayment during this period while you can use the funds for your essential needs
• The bank will not charge any penalty even though you are not repaying the loan during this period
• Since this period is a relief measure, the bank will not report you as a defaulter to the credit bureau during the moratorium period. Even if you don’t repay your loan, your credit score and credit history will not display an adverse impact.

Disadvantages of the Moratorium Period

• Since the interest on the loan amount continues to accrue during the moratorium period your EMI could increase after June 2020. Hence make provision accordingly if you choose to avail of the moratorium benefit
• Loans such as home loans, your overall tenure could increase which means a higher interest outgo during the entire loan period
• You will not be able to use your credit card during the moratorium period

The lending institutions will approve of the policies and provide the RBI relief package to all eligible borrowers, including the objective criteria for considering reliefs. The loan borrowers, however, are free to make loan repayments or service the loans at their own will even if they do not want to avail the moratorium.

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