The Covid-19 pandemic and the resultant countrywide lockdown has adversely impacted several aspects of India’s economy. However, the central government, state governments and other regulatory bodies have come up with numerous schemes to revive it and bring it back on track.
Announcements of the relief package worth Rs. 20 lacs crores by GOI along with deferments of loan repayments by RBI are two of the most prominent ones among them. Now, the loan moratorium was brought into effect in two different phases. Initially payments against existing loans could be deferred from March 1, 2020 to May 31, 2020. Now, the deferment has been extended till August 31, 2020.
Making use of the moratorium is optional and borrowers can choose to continue paying their EMIs regularly. Also, the lending institutions have the option to accept or reject moratorium applications as per their internally created criteria.
Several questions might come to your mind at this point- How are moratorium 1.0 and 2.0 different from each other? Does moratorium mean I wouldn’t have to pay my EMIs ever?
Well, here’s all you need to know.
Payment moratorium refers to the grace period where borrowers are not required to pay the monthly installments against their loan. In this case, borrowers will not be penalized for the delay in payments i.e. penal late fee will not be charged.However, granting the loan deferment depends on the eligibility criteria created by lending institutions.
The RBI notified banks and financial institutions to offer payment moratoriums with a view to help retail and business borrowers impacted by the COVID-19 national lockdown. The option of not paying EMIs on loan for six months will allow them to avoid cash crunch and resume business activities with greater ease.
Since the loan deferment/ moratorium is optional for borrowers, you will have to apply for the same as per the procedure put in place by your lending institution i.e. Bank or NBFC. If the borrower fulfills the eligibility criteria created by the lender, benefits of the grace period and their EMI due dates will be extended.
No, your credit score/ rating will not be affected if you choose to avail the moratorium.
In order tofacilitate payment of the accrued interest, your bank/ NBFC will use any of the three methods listed below:
• Increase your loan tenure.
• Increase your monthly installment value.
• Ask you to pay the additional interest as a separate payment. So, the moratorium is a payment deferment, not a payment holiday.
The fact is that your loan will incur additional interest even during the moratorium period. In case your you taken a loan recently, you will have a higher outstanding principal amount and the extra interest burden from opting for the moratorium will be significant. Hence, you should use the moratorium option only if you presently face a cash crunch and the additional cash in hand is worth the accrued interest during the moratorium.