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What is Moratorium?
Temporary posting of interest/principal/ mortgage payments is a moratorium. Initially, RBI allowed borrowers to grant a moratorium for payment of loan instalments due between 1 March 2020 and 31 May 2020.
The Reserve Bank of India announced an extension for three months to the regulation package in accordance with which borrower payments for installs due from 1 June 2020 to 31 August 2020 shall be liable for a moratorium / deferment for their loan repayment. However, for the late or moratory period, the interest on the outstanding loans will continue to be levied.
How is it Implemented?
Banks are approaching clients to find out, in an effort to resolve distress, if they want to use the moratorium on repayment of loans announced by the Reserve Bank of India (RBI).
All loans including home loans, personal loans, education loans, automotive loans, working capital loans, credit card dues and so forth are included. There will be no interest forgiven and the amount left will continue to increase.
For 6 months, the borrower shall pay additional interest by raising the amount per instalment or by number of instalments. This postponement does not adversely impact individual credit score
What about No-Cost EMI?
You may end up charging a very high interest rate on the remaining loan balance while opting for a moratorium in the case of a no cost EMI. Many times, when they buy electronic items, such as a refrigerator, air-conditioners, or mobile phones online or by offline distributors, they choose equated month-to-month payments (EMIs).
You are also eligible for a moratorium on such loans when you have bought a product and pay your EMIs. However, you might end up paying an extremely high interest rate on your outstanding loan amount if you choose a moratorium in the case of an EMI without interest.
Bajaj Finserv, a leading player in long-term consumer loans, has told its customers that the outstanding amount of no-cost loans is paid at a rate of 24 percent per year. The principal is recovered by rising the term of the loan.
For instance, when you purchase the Rs 60,000 product to pay Rs 5,000 as an EMI and have three months left, interest on the outstanding amount of (Rs5,000x3) Rs 15,000 will be charged at the rate of 24% per year. So, you'll have to pay around Rs 918 extra for the outstanding 15,000 loan amount. It will thus increase your product 's costs. When you have taken a long-term mortgage loan, it is not advisable to have a moratorium.
In addition, durable consumer loans have been marketed as cost-free EMIs, but in fact they are not cost-free. Hidden costs can be charged in various forms.
'You may not receive certain early cash discounts when you opt for 'no-cost EMIs' schemes, depending on the product and the offer. Otherwise you may have to make a down payment, depending on the products, offer and issuer, even if the amount of the loan is within your amount. In certain cases, there can be a processing fee, "Shetty said.
Therefore, before choosing for these no-cost loans it is necessary to review the terms and conditions.
In its 2013 circular, the Reserve Bank of India claimed that 'the interest factor, which is often camouflaged and passed on to the customer in terms of fees, is a zero-percent EMI scheme offered on credit card exchanges. The consumers should therefore not fall for such loans and they should stop the moratorium on these loans when they have opted for these loans as the cost of a moratorium on these items would be very high.
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