After the spread of Coronavirus pandemic all over the world, different banks are coming up with different policies. India is one of the biggest democracies in the globe and after coming across the troubling situation due to COVID-19 epidemic, banks have taken a certain strong decision. After the extension of national lockdown further from May 3 to May 17, Reserve Bank of India comes up with new policies. RBI may extend moratorium on loans by three months is to render help to the affected industries and people from COVID – 19.
Let us learn all about moratorium on loans!!!
Table of Contents
What is moratorium period?
Moratorium period is the time of the loan term when borrower does not make any sort of repayment. You can also consider it a waiting period prior to which repayment via EMIs will start. Usually, the repayment starts after the loan is paid and the payments need to be cleared by the given month.
How does a moratorium loan work?
As the period of the retail term loans increased due to moratorium, the borrower will pay the EMIs according to the revised schedule. According to the terms and conditions of this facility, if prepayment is allowed then you can make the clear the EMIs in Jun 2020.
What is the aim of a moratorium?
A moratorium is a short-term suspension of any activity or a law, till the future events get sorted out. A moratorium can be laid by the government or by any business. Moratoriums are brought into practice in case of temporary financial troubles.
Will borrower pay interest during moratorium period?
Customers will also have not to pay interest during the moratorium period but the interest on loan will continue. When there is a prevalence of moratorium period, then the borrower will not repay to the lender. Even if you are not paying anything during this period, you will be able to acquire an interest income. A moratorium period is sometimes also known as an EMI holiday because you do not have to pay any EMIs during this period. Technically speaking, this period is a repayment holiday and is basically a time during in which borrower gets time-off from the loan repayments. As a borrower, there is no need to make payment of the installments or interest dues.
According to the announcement made by Reserve Bank of India, borrowers get the repayment holiday from loan dues for the period of three months i.e. March 1 to May 31, 2020. The RBI also permitted banks and other lenders to look for the way out how they will arrange this postponement. This is inclusive of all sorts of loans such as personal and credit card dues.
Why moratorium period is important?
Moratorium period is an effective time that helps a borrower to postpone the repayment of liabilities and provides a help in planning finances in a better way. The non-payment of interest or principal amounts in these three months will not bring you in the category of defaults or will not affect your CIBIL score. On the contrary, the interest increased during this period may affect your pocket when the moratorium ends. The interest rate can move high for personal loans and credit cards.
Indian Banks’ Association played the Vital Role in moratorium of loans
Indian Banks’ Association sent the proposal for extending the moratorium of loans and Reserve Bank of India is considering it seriously. The situation is quite clear that income of the people is depreciating due to national lockdown which resultantly failed them to pay their debts by May 31. Here it is important to know that the previous moratorium period was May 31. It is creditable on the part of Reserve Bank of India to increase the time limit of the moratorium which will be relaxing for small to big organization runners and others who are in debt.
News on moratorium on loans Spread all Over
News channels spread the news about RBI may extend the moratorium on loans a few days back so that borrowers may get a little relief from making the EMIs clear before the dead line. This practical approach by RBI will definitely help the borrowers and banks in a difficult time where unemployment and insecurity, both increasing day by day. In fact, on March 27, RBI permitted all banks, rural banks, NFBCs, and related financial institutions to give a moratorium of three months on payment of installments of all term loans outstanding as on March 1 to help borrowers to overcome the hardships. Now, the tenor for the loans will increase by three months without deduction in the individuals’ EMI repayments of loans from their bank accounts by providing much needed liquidity. There will be a restart of the loan EMI payments only after the completion of the three months time duration.
I’m Shiv Kumar, a graduate with a passion for finance, marketing, and technology. My journey into finance started with a desire to understand money management and investing.
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