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RBI extends moratorium on loan repayments by 3 more months. Should you avail it?

RBI extends moratorium on loan repayments by 3 more months. Should you avail it?

RBI extends moratorium on loan repayments by 3 more months. Should you avail it?
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By Anshul  May 22, 2020 12:40:23 PM IST (Updated)

The Reserve Bank of India (RBI) has announced an extension of EMI moratorium on all term loans by three months -- June, July and August.

The Reserve Bank of India (RBI) has announced an extension of EMI moratorium on all term loans by three months -- June, July, and August. The interest accrued on the working capital facilities during the moratorium period has also been proposed to be converted to a funded interest term loan which will be payable by the end of FY21.

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"This means borrowers will not have to pay accumulated interest in one shot immediately after the deferment period," says Amar Ambani, Senior President and Head of Research – Institutional Equities, YES Securities
Earlier, the central bank had announced a three-month moratorium on all term loans outstanding as on March 1, 2020.
But is it actually a relief, let's understand in detail:
What does a 3-month moratorium extension mean for borrowers?
The extension by three months moratorium on repayment of term loans by borrowers means that they would not have to pay the loan EMI installments till August. This period is also known as an EMI holiday.
Who can avail of it?
As per RBI, this is applicable to borrowers who have term loans, including agricultural term loans, retail loans, and crop loans. These installments include principal and/or interest components, bullet repayments, EMI as well as credit card dues.
Does this mean that EMIs are waived off?
During the moratorium period, the borrower need not pay the EMIs but that will not mean that the EMIs are waived off. The borrower of home loan, car loan, or the credit card user has to pay the accrued interest.
Will it impact the credit history?
Under normal circumstances if the loan repayment is deferred then the borrower's credit history and risk classification of the loan are adversely impacted. However, in the case of this moratorium the borrower's credit rating will not be impacted in any way, according to RBI.
So, it a welcome step? Should one avail it?
The three-month extension of the ongoing moratorium will be welcomed by retail borrowers currently struggling with cash flow problems.
However, experts warn against taking it as interest will keep on adding because of the deferment.
"Take the moratorium but be aware of the interest rates. If the borrower is at the start of the loan tenure, six deferred EMIs may mean tens of additional EMIs especially if the loan is a long-term one such as a home loan," says Adhil Shetty, CEO, BankBazaar.
"So to avoid getting deeper into debt, consolidate finances over the next year, save some cash, and when one is confident of financial stability, pre-pay all the dues that have been deferred. This would erase most of the additional debt that had been created by the moratorium," he adds.
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