How Does the 3 Months EMI Moratorium Work?

The COVID-19 pandemic has brought India to a standstill. There have been almost 75,000 confirmed cases as of May 13, 2020, and around 2,400 deaths. But the toll on human life isn’t the only way the pandemic has affected our country. There has also been a tremendous economic impact due to the restrictions and lockdown.

Each day of the coronavirus lockdown is expected to cause a loss of .5 billion to the Indian economy, according to a report by Acuite Ratings and Research. The government has taken several measures to counter these economic effects. These include reduction of interest rates by 75bps by the RBI and cutting the reverse repo rates to just 4%.

Another step taken by the Indian government to ease the economic pressure on the public has been the announcement of a loan moratorium by the Reserve Bank of India.

How Does Loan Moratorium Work?

Due to the nationwide lockdown, borrowers have been under tremendous economic stress. For this, the Reserve Bank of India has permitted banks to offer a 3-month moratorium on EMI payments and fixed-term loans. Home loans, car loans, personal loan and loan against property qualify as term loans. The moratorium also works for credit card dues. The RBI has allowed all commercial banks, co-operative banks, NBFCs, and All-India Financial Institutions to provide a 3-month moratorium. The moratorium can be provided for the months of March, April and May.

However, it must be remembered that this moratorium has not been made mandatory by the RBI. The final decision lies with the individual bank, whether it wishes to provide the moratorium. But most reputable banks across the country have decided to honour RBI’s call.

Opting for the moratorium is also not compulsory for customers. If the customer can afford to pay the EMI, they can do so. Customers who have already paid the EMI can contact the lender and ask for a reversal too.

Not a Waiver

The moratorium is a respite for many. But it should not be misunderstood to be as a waiver of the EMIs and dues. The interest for this 3-month period would have to be paid by the customer after the EMI moratorium period is over. The interest that gets accumulated during this timeframe would be added to the principal amount. Also, since you will not be paying the EMI for three months, the tenure might be increased. However, customers can opt to raise the EMIs for the remainder of the tenure to prevent any such extension.

How Does the Loan Moratorium Affect Credit History?

Under normal circumstances, if a borrower is late on loan repayment, their credit score gets adversely affected. But, according to the RBI guidelines, the credit rating of the borrower would not be impacted in case of the moratorium.

The 3-month moratorium has provided a much-needed respite to borrowers. However, it is better to take the EMI moratorium only if you are unable to make the monthly payments, since taking the moratorium would only add to your burden in the long term.

About This Author

Shaheen Shaikh http://www.adrclinic.co.uk Joined: April 29th, 2018