Corona’s shock: If EMI is not repaid for three months, the total cost of debt will increase

The Reserve Bank urged the banks, not to recover EMI for three months to provide relief to loan payments to traders and citizens amid the ongoing crisis of the Corona pandemic. Many government and private sector banks have also implemented this system and started giving relief to their customers in recovering EMIs of loans from March 1 to May 31.


Despite this, there are many questions about the EMI payment.


Answers to some such questions are being issued by the Indian Banks Association on Wednesday which is as follows:


1-Who are eligible for benefits in this RBI package?


All loans (agricultural term loans, retail loans, crop loans) and cash credit/overdraft borrowers are eligible. The repayment period for their installments (including interest) has been extended by 90 days. This means that the loans which were supposed to be repaid by March 1, 2025, after 60 installments, can now be repaid by June 1, 2025.


2-Is this rebate only for the principal loan amount or does it include interest amount too?


Rescheduling of the original loan amount to be repaid between March 1, 2020, and May 31, 2020, can be extended by three months. This will apply to EMI based loans. In the case of other loans, it will apply to all installments and interest outstanding during the same period. At the same time, in the loans which have not yet been started, only the interest payment will be granted for three months.


3- Should all traders/individuals take advantage of it?


If there is any disruption in your income or there are cash constraints, then it can be taken as an advantage. However, the borrowers must keep in mind that the interest on the loan will not have to be paid immediately but it will continue to be added to your account, even during the three-month deferment. This will increase the overall cost of debt.


For example, suppose you have a loan of 2 lakh rupees and 12 percent interest is charged. In this case, you pay an interest of 2 thousand rupees every month. If you do not pay interest for three months, you will have to pay an additional payment of Rs 6,060.20 in the next installment. If you repay this amount after the entire duration of the loan, then every year during this period, interest will also be added on the outstanding balance and the cost of your loan will increase.


4. How will this step of RBI provide relief from default?


Delays in debt payments are reported to the credit bureaus and are considered a default. In the case of more than 5 crores, banks report overdue to RBI through CRILC. Following the new instructions, payment information will not be given to the credit bureau or CRILC for three months from March 1. During this time no punitive interest or fee will be payable.


5. Will its relief also be available on the credit card balance?


This relief will also be available on credit card payments. In case of credit card dues, a minimum payment is required and if not done, the credit bureau is informed. It will not be reported to the credit bureau for three months now. However, the credit card company will charge interest on the unpaid amount and only interest will be given a penalty in this period.


These were some of the questions which were answered by the Indian Banks Association. EMI loan payers can now pay the installments according to the newly scheduled dates.

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