Key Highlights of the Blog:
- Three-month moratorium from RBI to the borrowers.
- Interest still to continue to accrue during this 3-month of the moratorium period.
- The moratorium on loans is not an EMI waiver.
- Why it is ideal to keep making payments.
- The customer availing this will have to bear a high cost as interest will keep on accumulating on the outstanding amount.
RBI Governor on Friday announced that banks are now allowed to provide a 3-month moratorium for the fixed-term loans. He added that these steps in current challenging times will help preserve economic stability & boost liquidity.
After the announcement borrowers have a lot of questions regarding the three-month moratorium on loans.
Most frequently asked questions by borrowers are:
- Will these three months be interest-free?
- Will CIBIL score be affected when availing this moratorium?
- Is it applicable for the credit cards?
- Is it profitable to go for this?
These are the basic questions arising from the borrower’s end, and we are going to discuss the answers to all these questions in this blog.
The first and the basic question arising here is: will these three months be interest-free?
The answer to this is- No. These three months will not be interest free. Interest will keep on accumulating for these three months on your outstanding amount.
The second important question is: Will CIBIL score be affected when availing this moratorium?
Here is the good news! The RBI governor in his announcement has clearly mentioned that- banks are now free to offer 3 months moratorium to its borrowers and it will not be reported to CIBIL. Hence, it is not going to affect the CIBIL score of the borrowers.
The next question is: Is it applicable for credit cards?
The answer to this is -The moratorium also covered credit card dues along with all the term loans.
The one more question arising here is: will it be profitable to go for this?
Well, it’s not profitable as this is only postponing your EMIs. Interest will be calculated for these months as well. So, at last, you may need to pay more later on interest. But, it can surely help you when you are facing cash crunches due to loss of income or reduced income.
However, we will recommend you to try to clear off credit card dues.
Despite the RBI’s moratorium option, you should try to clear your credit card bills. This is because credit cards usually charge a much higher interest rate than other loans. And hence, a credit card late payment can significantly increase your dues as interest gets added directly to the bill. Therefore, if you are a credit cardholder, and have sufficient funds paying your credit card bills monthly will be best, even if your lender is offering the moratorium of three months.
For the individuals who have taken a marginal hit due to COVID-19 lockdown should at least try to clear the minimum balance due. This will help you form the massive interest which will be needed to pay after 3 months.
Why did the RBI announce the relief?
The announcements made by Reserve Bank of India have been taken to mitigate the burden of debt servicing for the common masses on account of the COVID-19 pandemic. These measures will help people to maintain their economy and livelihood. The pandemic is huge and 21 days lockdown has already been announced by the PM in the country. Hence, the effect of a pandemic is going to be huge and will affect all sections of society economically. In the worst case, there can be even loss of income, as businesses are facing a tough time. These measures are an effort to reduce COVID-19 impact and to maintain the Cash Flow in the middle-class people.
It’s a moratorium, not waiver!!
Many people are thinking of it as a loan waiver for three months. But the fact is – it is a legal authorization to the debtors to postpone their EMI payments for the ongoing loans. However,it is on discretion with the lenders to apply this moratorium option.
SBI has already announced that it will honor the RBI’s recommendation, and allow this moratorium for its customers.
This moratorium is applicable for all the term loans including agricultural term loans, retail and crop loans, home loans, car loans, and personal loans. Many commercial banks such as rural banks, co-operative banks, and NBFCs have now permitted the moratorium of three months on payment of all loans. People are waiting for more Banks to come ahead and allow this moratorium.