How you can reduce costs by choosing a credit moratorium & nbsp | & nbsp Photo: & nbspThinkstock
The second wave of the pandemic and the lockdowns that followed in many states caused financial hardship for many people. Many have witnessed loss of income due to business closures and job losses.
The Reserve Bank of India (RBI) extended the lives of borrowers affected by the pandemic in the form of a Framework Agreement (RF) 2.0 announced by the central bank on May 5, 2021. This was within the framework of the measures announced last time. in accordance with RF 1.0, according to which problem borrowers are entitled to a loan moratorium. The moratorium refers to the deferral of payments that are added to the principal. When such a borrower starts repaying, the maturity and in some cases the EMI are increased. These are monetary policy instruments used by central banks such as the RBI and the US Federal Reserve to protect borrowers in financial distress.
Governor Shaktikanta Das authorized the extension of the moratorium for those who took advantage of it in 2020 to two years. Individual borrowers and small business owners who took advantage of the RF 1.0 restructuring of their loans for less than two years were allowed to make full use of the two-year window provided by the central bank.
“Borrowers who opted for a moratorium between March 2020 and August 2020 but still hadn’t recovered from the economic impact of covid and wanted to impose a moratorium for up to 24 months in total could apply for an additional period (24-X). and then apply for a restructuring to pay “unpaid EMIs and lenders had to find a way to repay the same over the life of the loan or any similar scheme,” said Raj Khosla, founder and managing director of MyMoneyMantra.com.
However, those borrowers who did not take advantage of the benefits provided by the central bank in 2020 can apply to lenders to restructure their loan, provided that such accounts were classified as “standard” as of March 21, 2021. But for these borrowers, a line of credit is available. who have unpaid contributions of Rs 25 crore or less. Any account that is 90 days or more overdue on its due date can be classified by creditors as a “non-standard” account.
Who has the right to a moratorium, restructuring?
Individuals who have taken out personal loans, with the exception of loans provided by credit institutions to their personnel; persons who have taken advantage of business loans up to a limit of Rs 25 crore. Small businesses doing retail or wholesale are less than Rs 25 crore.
According to the SBI, all loans, including home loan, car loan, education loan, and individual loans, are eligible for a moratorium. In the event that the same borrower affected by the coronavirus has several loans, a moratorium will apply to all such accounts.
How to do it?
Borrowers facing financial difficulties have the option to apply for a full moratorium or deferral of their contributions, both interest and principal, for a maximum period of 24 months or two years. However, the borrower can also choose to pay interest only on the principal. However, borrowers should be aware that neither interest nor principal will be canceled during the moratorium or restructuring period. Once the repayment period ends, the borrower can continue with the original maturity with higher EMIs, or opt for an extended maturity with the original EMIs.
Increased cost of choosing a moratorium
It should be noted that the choice of a moratorium will increase the liability of the borrower, since the interest accrued during the moratorium on the principal amount of the debt will have to be paid at the end of the moratorium period. The interest expense for the borrower will increase as the outstanding amount increases due to non-payment of contributions during the moratorium period.
Experts believe that in order to reduce the cost of the moratorium, borrowers should continue to pay at least a portion of the interest on the outstanding amount so that the outstanding amount is not affected.