Decoding RBI’s 3-Month Extension on EMI Loan Moratorium: Should You Avail It?

May 27, 2020 7:15 IST 18367 views

Summary

The 3-month extension on loan moratorium announced by the RBI, thereby making it a 6-month Loan Moratorium, will provide massive relief to the retail borrowers struggling with their finances due to the COVID-19 pandemic. Check out this post to understand the moratorium proposal and whether you should avail it.

Content

The COVID-19 pandemic has not only impacted the Indian economy but has also resulted in the disruption of cash flows and loss of income for millions of people. The extension of loan EMI moratorium by another 3 months, announced on 22nd May by the RBI Governor, is thus, a welcome move for borrowers struggling with liquidity issues.

But while the financial institutions have already started the implementation of this moratorium, most borrowers are still unaware of whether or not they should avail it. Let us try to understand this in detail.

What is the 6-Month Loan Moratorium Announced by the RBI?

As per the announcement by the RBI, retail lenders can now provide a moratorium for another 90 days (i.e. from 1st June, 20 till 31st Aug, 20) to all the term loan instalments due between 1st March and 31st Aug, 20. This moratorium applies to all the different types of term loans, including home loans, personal loans, education loans, auto loans, and even credit card dues.

If a borrower decides to avail of this facility, his/her credit score will not be affected in any way due to non-payment. But it is worth noting that while every lender will mostly be providing this moratorium facility, it is not mandatory for the lenders to accept the extension request of every customer.

If the lender has reasons to believe that a particular borrower is financially capable to continue paying his/her EMI, the lender then might disapprove the extension application of the borrower.

Can a Borrower Defer the Payment of Principal and Interest Components?

Yes, for up to a period of 6-months, the principal and interest component of any retail loan can be deferred. If you avail the moratorium option, your loan tenure will be adjusted accordingly.

For instance, let us assume that you are currently repaying a home loan, which will mature on 1st August 2030. If you avail this loan extension, your new loan maturity date will now be 1st November 2030.

But borrowers should make a note of the fact that interest will continue to accrue on your outstanding loan balance for this duration of 90 days. In other words, this loan moratorium is only a temporary measure to help borrowers get over the financial crunch caused due to the pandemic. It is not a waiver of any kind and should not be treated as such.

Should You Avail the Loan Moratorium?

The answer entirely depends on your current finances. If the COVID-19 pandemic has resulted in a loss of income and you are currently struggling with your finances, it can be a compulsion to avail this facility.

But if you can continue paying the EMIs, it’s better not to use this moratorium facility. As the interest will continue to accrue during this period will get added to your principal  availing the facility will either increase your EMI burden or enhance loan servicing tenor .

So, the decision depends on you and your current finances. You can get in touch with your lender to know more about the moratorium facility and get exact details of how availing and not availing it will impact your loan repayment. 

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