Banks have started rolling out three month moratorium on all term loans as announced by the RBI under the COVID-19 regulatory package. However, experts say borrowers should opt for it only if they face cash flow problems.
All the term loans like housing loan, auto loan as well as credit card dues are eligible for relief under the scheme. For EMI based term loans, the relief is applicable for three EMIs falling between March 1, 2020 and May 31, 2020 and the tenor will be extended by three months and have to be paid during the extended period. However, the interest gets accrued on the loans.
“Borrowers must understand that it is only a deferment of the EMI payment and interest gets accumulated. This would be helpful for people who are facing cash flow problems like the self employed category. For salaried, those who face salary issues can take advantage of the deferment,” said Harsh Roongta, a registered Investment Adviser. "If you don't face a cash flow problem, it’s better to pay the EMI and avoid higher interest," he added.
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In case of credit cards, Mr. Roongta said if there is no major cash flow problem, it is better to pay of the dues, as they attract higher interest rates.
FAQ by Indian Banks Association also suggested borrowers to opt for the benefits if there is a disruption in cash flow or there is loss of income. It also pointed out that interest rates on credit card dues are normally much higher than normal bank credit and a decision should be taken accordingly, after checking with the credit card provider on the interest payable.