Should you opt for a three-month moratorium for debit card EMIs?

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In the wake of COVID 19, the government took some initiatives to provide relief to the borrowers. One such relief is a three-month moratorium on term loans’ equated monthly installments and credit card dues. The apex body, Reserve Bank of India allowed the deferred loan payment falling due from March 1, 2020, to May 31, 2020: (i) principal and/or interest components; (ii) bullet repayments; (iii) equated monthly installments (EMIs); (iv) credit card dues. This moratorium date is further expected to be pushed for three more months.

Individuals are allowed to avail of the EMI moratorium for credit options like home loans and personal loans. Further, the EMIs moratorium can also be availed for the debit cards EMIs 

Let us understand how this Debit cards EMIs moratorium works :

Moratorium on Debit cards 

Generally, the debit cards EMIs are available for a duration of 3 months, 6 months, and 12 months. A few banks also offer EMIs option on debit cards for more than 12 months. There is very little documentation required for availing the EMIs on Debit cards. 

Banks have the authority to provide the EMIs moratorium to the customers. Banks like ICICI and SBI have already mentioned about the option to avail this loan. So, if you are the borrowers from one such bank you can avail the benefit.

How does debit card moratorium work?

The moratorium of three months will be applicable for the EMI on debit cards. The system will not generate the demand for the EMI from March to May 2020 and the tenure would be extended for a period of three months accordingly. The interest during the moratorium period will keep on accruing on the outstanding amount. During the moratorium period, as per the statement cycle dates, interest charges as specified at the time of availing of debit card EMI will be levied if your dues are not cleared within the payment due date.

How EMIs will be recovered post Moratorium

Individuals need to understand that the banks are providing the moratorium, which is about giving relaxation on the EMIs for a certain time, and it is different from the waiver. The interest will continue to be accrued in the relaxation time. So, the moratorium means that the EMIs period of a loan will get extended or the EMIs amount will get higher to avoid the loan tenure getting extended.

As Equated monthly statements are billed according to regular EMI on debit card statement cycle, EMIs would continue to be billed as per the original amortization schedule. However, due to moratorium, the payment for these charged transactions will need to be done as per the payment due date of the after three months of the relaxation provided to avoid late payment. 

Individuals are advised to know the terms and conditions of the moratorium in a nuanced way as different banks might have a few differences in their loan moratorium in debit cards.

Should one opt for EMI moratorium 

Let us consider one example to understand the impact of the availing the EMIs moratorium.

Case 1:

Raj took a loan of 1,00,000 on his debit card at an interest rate of 15% for a tenure of 12 months. He was provided with the option of a moratorium avoided.

Total Payment (Principal + Interest) = Rs. 1,08,310

Case 2:

Sundar took a loan of 1,00,000 on his debit card at an interest rate of 15% for a tenure of 12 months. As Sundar was facing an extreme cash crunch situation, he availed the loan moratorium, and now his tenure extends to 15 months.

Total Payment(Principal + Interest) =₹1,10,290

So, one should not opt for the loan moratorium until or unless he is facing the extreme cash crunch; otherwise, it will only increase the interest payable.

Concolusation : 

COVID 19 brought with it economic crisis due to lockdown and hampered the economic activity. To tackle the economic crisis government took many initiatives, one such initiative is providing the EMI moratorium on term loans. RBI allowed the deferred loan payment falling due from March 1, 2020, to May 31, 2020: (i) principal and/or interest components; (ii) bullet repayments; (iii) equated monthly instalments (EMIs); (iv) credit card dues. This moratorium date is further expected to be pushed for three more months.

In addition to this, the EMIs moratorium can also be availed for the debit cards EMIs. 

EMIs on debit cards

The debit cards EMIs are available for a duration of 3 months, six months and 12 months. There is very less documentation required for availing the EMIs on Debit cards. Banks have the authority to provide the EMIs moratorium to the customers.

How does EMIs moratorium work

A moratorium is different from the waiver, unlike waiver in moratorium the amount is not waived and an individual will have to pay the interest and the loan amount accrued. The interest will even continue to be accrued in the relaxation time. 

Should one opt for EMIs moratorium

 One should not opt for the loan moratorium until or unless he is facing the extreme cash crunch; otherwise, it will only increase the interest payable.