With the global spread of the COVID-19 pandemic, the Reserve Bank of India announced measures to ease the financial pressure on borrowers by allowing lending institutions to offer a moratorium, or an EMI holiday, for loan repayments and credit card dues. Under the RBI order, lenders may permit borrowers to defer installments and card payments due between March 1, 2020, and May 31, 2020. This relief aims to help individuals and businesses facing loss of income. This article clarifies common questions borrowers have about the three-month moratorium on loans and credit card dues.
Am I eligible for the benefits under the moratorium period?
Borrowers with term loans, cash credit accounts, or overdrafts are eligible. Eligible categories include:
- Agricultural term loans
- Retail loans
- Crop loans
- Loans under pool purchase arrangements
All accounts classified as Standard Assets on March 1, 2020, qualify for the moratorium. There is no special documentation required to avail of this facility. Principal and interest installments due during the three-month moratorium will be shifted forward by 90 days. For example, if a loan scheduled to mature on March 1, 2022, had remaining tenure accordingly, its new maturity would be June 1, 2022.
Can I reschedule payments for all term loans? Will it affect my credit score?
Yes, you may reschedule payments across loan segments and tenors. The moratorium is a temporary deferment, not a waiver, and opting in will not negatively affect your credit score if implemented as per RBI guidance.
What is rescheduled — the principal or the interest too?
Principal repayments due between March 1 and May 31, 2020, can be rescheduled. For example, an EMI originally due on March 3, 2020, would instead become due on June 3, 2020. For EMI-based term loans, the loan tenor will be extended by three months. For other term loans, the repayment schedule and interest due during the moratorium period will be deferred regardless of repayment frequency (monthly, quarterly, half-yearly, annually, bullet payments, etc.). If loan repayment had not commenced by March 1, interest for the three-month period will be taken into account. Note that interest will continue to accrue during the moratorium; only the payment schedule is deferred.
Can the term loan go beyond the maximum period stipulated for a product?
Yes. As per the guidelines, a term loan’s maturity may be extended beyond the originally stipulated product period or the limits in the sanction terms to accommodate the moratorium. Interest on working capital facilities will be treated as deferred payments for the moratorium period.
Are there any costs to availing the moratorium?
Opting for the moratorium carries costs because interest is deferred and will continue to accrue. Depending on the remaining tenure, this can effectively increase the total number of EMIs you pay. For example, typical illustrative impacts could be:
- 36 remaining EMIs: roughly 1 additional EMI of cost
- 60 remaining EMIs: roughly 2 additional EMIs of cost
- 120 remaining EMIs: roughly 5 additional EMIs of cost
- 180 remaining EMIs: roughly 8 additional EMIs of cost
- 240 remaining EMIs: roughly 15 additional EMIs of cost
These examples show that interest is postponed, not waived, and will continue to accrue on the outstanding balance.
Should I avail of the moratorium benefit?
If you are able to meet your obligations, continuing to pay EMIs is generally the better financial practice because it avoids additional accrued interest. The moratorium is primarily useful for borrowers experiencing significant cash flow disruption due to the economic slowdown. Consider it as a relief option when necessary, and use it only after weighing long-term cost implications. Also bear in mind that RBI’s directives are guidelines and implementation may vary across lenders.
Will my credit card dues be deferred?
RBI’s relief provisions cover credit card payments as well. If a card issuer offers the moratorium, overdue amounts for the three-month period will not be reported to credit bureaus. Card issuers should not apply penal interest if they extend the moratorium, but standard interest on the unpaid amount will continue to be charged. Credit card interest rates can be high, so confirm the exact interest and charges with your card provider before opting for the moratorium.
Feel free to contact your lender or financial advisor for specific guidance about your loans, credit card accounts, and short-term cash needs.