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During the lockdown, the RBI announced a loan moratorium. This has been essentially extended again until the end of September. But while the jury is still (literally) out on if there will be interest charges on deferred EMIs and if there will be a further extension, we spoke to experts to find out if you should opt for a moratorium.

loan payment

The Reserve Bank of India (RBI) had initially announced the loan moratorium from March 1 to May 31. This was extended till August 31, and while the issue is still in the Supreme Court, it allowed the extension to continue till September 30. The moratorium allows you to defer instalments towards loans (including credit cards) between that period. The aim was to lessen the burden that the pandemic would bring on economic activity and cash flows. But the question remains should you opt for it or get an extension on the loan moratorium?

Credit report will be affected

“If you can afford it, then definitely not”, says Ashwin Bhakuni, Senior Product Manager, Personal Loan and Insurance, IndiaLends. He explains that apart from the interest rates, credit-worthiness plays an important role in the future. “Although the moratorium will not affect your credit scores for the mandated period, it will reflect on your credit report reported to bureaus.”

credit report

The credit-worthiness of an individual plays a significant role in banks lending policies towards you. Essentially your propensity to back will result in favourable interest rates and credit offers. “Lending policies can and will take your credit report into account to give out future credit. In fact, a couple of lender policies already are. Going into the future, customers opting for a moratorium now will become highly risky for lenders, especially for state-owned and financially sound private banks,” Bhakuni warns.

Moratorium does not mean interest waiver

“A restructuring of loans, following the end of the moratorium scheme [when it is notified] is in the works.  This will help customers manage cash flows for the next two years. Nonetheless, you should not confuse this for an interest waiver,” says Subramanya SV (Subu), Co-founder and CEO, Fisdom.

loan moratorium

The Supreme Court will hear the plea on waiver of interest during the moratorium period as well. But until that is clarified or waived off, you will have to pay the interest on deferred EMIs. “Neither moratorium nor restructuring is equivalent to waving off the interest at this point. The customer still has to bear the interest for the period,” Subu adds.

Like Bhakuni, Subu is also of the view that avoiding a moratorium is best if you can afford to pay. “Our view is that as much as possible the customers should pay their EMIs on time so that the interest component does not spiral. It also helps in keeping the credit history clean to avail future loans,” Subu adds.

All images: Courtesy Getty

Anam Naqvi

Anam is an astute writer who aims to demystify personal finance and wealth management for the common man. She has written on geopolitics, economics and politics for the Economist Intelligence Unit before moving to personal finance content strategy. Her penchant for storytelling and conversation has resulted in a podcast about human stories called “Sapien Story”.