Will Moratorium Affect My CIBIL Score

As a relief measure amid the lockdown, the Reserve Bank of India (RBI), in March 2020, announced its decision to provide a moratorium of three months on all outstanding retail loans, starting from the month of March itself. The RBI clearly stated that it was not a measure to waive off the outstanding loans  but a mere extension of the loan tenure. The requisite interest charges on the outstanding loans would continue to accrue, the RBI said.

The country’s central bank also underlined that opting for the 3 month moratorium would not negatively impact any individual’s CIBIL score. This essentially meant that a moratorium on CIBIL score also was provided.

Understanding RBIs moratoriumWill it affect my credit score?

A moratorium can be defined as the period where any individual, who has earlier availed a loan, is not required to pay the installments. The key highlight of the moratorium, as announced by the central bank, is that the borrower’s loan repayment schedule as reflected in their CIBIL score will not be affected.

In a normal scenario, if you default on your repayments, it will adversely impact your CIBIL score. But the central bank’s directive provided a moratorium on CIBIL score, where the rescheduling will not be treated as default.  The rationale behind the moratorium was to provide relief to individuals, whether salaried or self-employed, dealing with liquidity crises.

RBI provided this moratorium on the following repayments:

  • Principal and interest segments of an outstanding loan
  • Equated Monthly Installments (EMIs)
  • Bullet repayments
  • Credit card dues

What type of lending institutions come under the ambit of the 3 month moratorium?

The central bank, in its circular, has clearly said that all lending institutions, including banks and NBFCs have to provide a moratorium on all types of retail loans, like personal loans, home loans, automobile loans etc. All term loan repayment demands by both banks and NBFCs are under the ambit of the moratorium. The RBI’s directive is applicable to the following types of lending institutions:

  • Commercial banks
  • Regional rural banks
  • Local area banks
  • All India financial institutions
  • NBFCs
  • Housing finance companies
  • Micro-finance institutions

How can you utilize the moratorium?

  • According to industry experts, you can opt for the moratorium if you are facing a loss of income because of the  lockdown owing to the pandemic. If you opt for the moratorium, you will not have to pay any penal charges for default, nor will it affect your creditworthiness as reflected in your CIBIL score.
  • Experts, however, suggest adhering to your earlier repayment schedule if you availed big-ticket loans, like loan against property or a housing loan. In the case of a high outstanding amount, you will continue to incur high interest charges, which can negatively impact your finances in the long run.
  • You can also utilise the moratorium on CIBIL score to further boost your credit worthiness. As per experts, you can use your savings to clear your credit card dues. Not paying your credit card dues and continuing with purchases through your credit card can result in a high cumulative interest amount. Ensure that you do not fall in a debt trap by deferring repayments.

Understanding CIBIL score: Financial institutions check your creditworthiness on the basis of your CIBIL score. The Credit Information Bureau (India) Limited (CIBIL) provides the three digit score - ranging between 300 and 900 - to financial institutions on the basis of your credit history. The CIBIL score is of paramount importance in securing various types of loans, especially unsecured loans like a personal loan. A CIBIL score of 750 is considered good for availing a personal loan. Remember, with a good CIBIL score your loan can be easily approved at a comparatively better rate of interest.

How to check the CIBIL Report?

To check CIBIL score, you can go to the official CIBIL website and create an account.  Once you fill the requisite details, including your PAN details, you will receive an OTP. After completion of the verification process, you will receive your free credit report. You can see the details of your credit history along with a summary of your clean, negative and defaulted accounts. Once you check CIBIL score, you can take the requisite steps to improve your creditworthiness.

Read more on how you can check cibil score by pan card only at Finserv MARKETS

Conclusion

Thus, availing the 3 month moratorium will not affect your CIBIL score. You must, however, remember to maintain a good CIBIL score by not defaulting on repayments, once the moratorium ends. To get a holistic picture of your financial well-being and credit worthiness, remember to keep a check on your CIBIL score from time to time.