The RBI has taken measures to counter the economic fallout of the coronavirus pandemic. The key interest rate has been reduced sharply by 75 bps. Reverse repo rate too, was cut by 90 bps point to 4%.
Higher reduction in the reverse repo rate is aimed at prompting banks to lend more. Banks are also permitted to defer payment of EMIs for three months . What does this loan moratorium mean?
The loan moratorium entails a customer to choose not to pay the monthly instalments.This is on term loans for the months March, April and May. Term loans are classified as - home loan, personal loan, car loan and loan against property. This facility is also applicable for credit card dues.
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But, this does not mean that EMIs are not being waived. The amount has to be paid once the moratorium is lifted.
The moratorium is not mandatory: borrowers can continue to make EMI payments. How does this affect customers? The interest accumulated in these three months will be added to the principal. As a result of not making payments for three months, the tenure of the residual EMIs is bound to increase. The burden is also higher if a customer is at the beginning of the loan cycle.
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Although, if a customer has already paid EMI for March, he/she can seek reversal. Availing the moratorium will not impact the credit score. Banks are not going to be allowed to classify the loan as a non-performing asset.
Thus, banks cannot report any default on this count to the credit bureaus.
