Worried About EMI Payment amidst Lockdown? Take It Easy, Here’s Some Good News!
Listen to Worried About EMI Payment amidst Lockdown? Take It Easy, Here’s Some Good News!
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My college friend, Nidhi, is getting married this month. On Sunday evening, I called her to ask how the preparations are going and if the plans are still on as scheduled amid the virus outbreak and the resultant nationwide lockdown.
She responded, "Now instead of a big fat Indian wedding we will be having a small ritual at my residence with just immediate family members. But I don't mind it. We will have a grand celebration when the things get back to normal. But there is something bothering me..."
I could hear the concern in her voice and asked "What happened... is everything ok?"
Sounding a bit gloomy she said, "The firm where I work has decided to defer salary payments as the business has been hit due the lockdown. As you know, I have taken a personal loan to meet my wedding expenses. I am worried that I would not be able to make timely payment of EMIs and risk being charged a penalty amount."
I asked her to relax, "RBI has provided some relief in this regard to enable the borrowers to tide over the economic fallout from coronavirus. Banks, NBFCs and other financial institutions have been asked to allow a moratorium of three months for payment of instalments for all term loans outstanding loans as on March 31, 2020.
Moreover, RBI has reduced policy rate by 75 basis points. If your bank decides to transmit this lower rate to its customers, it will lead to a reduction in your EMI amount."
"Really?" She asked excitedly, "Does it include personal loan as well? If yes, it would definitely take some burden off me."
"Yes it includes principal/interest/EMI payment on all term loans including personal loans, home loans, automobile loans, education loans, etc. falling due between March 1, 2020, and May 31, 2020. Not just that, credit card dues can also be deferred for three months." I was happy to note the excitement in her voice.
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"That sounds good, but won't it affect my credit history?" Nidhi quizzed.
"No, non-payment of EMI during this period will not be considered as a default, and therefore it will not impact your credit score or attract penalty. Credit information companies (CICs) have been asked to ensure that the policy does not adversely impact the credit history of the beneficiaries. But remember that this is only a temporary relaxation not a waiver or concession of any kind. The repayment schedule and all subsequent due dates as well as the tenor of such loans will be shifted across the board for a period of three months."
"But my EMI gets auto-debited from my account. How do I stop it?" She asked.
I explained that, "RBI has asked lending institutions to put in place a Board approved policy to provide moratorium. Therefore, the procedure may differ from institution to another. Lending institutions may keep a provision to stop auto-debit of instalment. Once the policy is finalised, I believe you will receive a notification of some kind through e-mail, SMS or phone call informing about the procedure. They may also ask if you wish to opt out of this benefit and provide it only to those facing liquidity issues."
"Do you think I should go for it?" she enquired.
"In my opinion if you can afford to stick to your schedule you should do it. Opt for it only if you are facing financial crunch. It is important to note that interest will continue to accrue on the outstanding portion of the term loans during the moratorium period. Meaning, once the moratorium is over and you start paying EMIs, the interest due for these three months will be added to the outstanding amount."
"Take some time to evaluate and manage your finances and take informed decision. This is a great time to dip into your contingency reserves to save yourselves from financial stress."
"That is a great advice. Thank you!" She said feeling much relieved.
"You are welcome." I said.
We bade each other goodbye hoping that this crisis would end soon and we would be able to meet again.
RBI's decision is a great move to provide relief to those facing cash crunch as a result of the lockdown. If you have taken a loan or have outstanding credit card dues you can benefit from this decision.
Keep in mind that it is a temporary relief and payment will have to be made as and when it becomes due after the moratorium. Once the relief period is over and if you are still not able to make timely payment, it will impact your credit score and attract penal charges. So if you decide to avail the moratorium weigh the pros and cons.
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Warm Regards,
Divya Grover
Research Analyst