Are there any benefits of a Loan Moratorium?

With the covid-19 pandemic raging in India, the RBI offered the clause of loan moratorium for borrowers.

The EMI moratorium scheme is supposed to offer a breather to borrowers of big-ticket loans during the economic slowdown. It can be a massive help to people with small businesses or those who work in the unorganized sectors in India.

Here’s a guide on what loan moratorium means and how they benefit borrowers.

What do you mean by loan moratorium?

A loan moratorium is an officially recognized period wherein the borrower can delay the loan repayment on specific instalments during the grace period. The regular practice is to repay the loan as soon as possible. But with a loan moratorium, the borrower gets a break and can then resume paying after the period is over. They can choose to pay EMIs after the given break.

Let’s understand this in the context of RBI’s home loan moratorium announcement. RBI offered a loan moratorium to home loan borrowers. During this period, the borrowers will not be treated as loan defaulters and can resume repaying the loan after the grace period is over.

Are you eligible for a loan moratorium?

The most common applicants for a loan moratorium are students. However, a loan moratorium is available for all loans such as personal loans, gold loans, credit card dues, and home loans. The formalities may differ with the bank, but you generally need to submit an application for a loan moratorium.

Benefits of loan moratorium

A loan moratorium can be very helpful for borrowers, particularly during a crisis.

• Does not impact credit score negatively : Applying for a loan moratorium does not affect your credit score negatively. This is perhaps one of the most significant advantages of getting a loan moratorium.
• Relieves financial burden: You can better plan your repayments after getting a loan moratorium. It can also help you save better and may protect you from future expenses.
• A big help in a liquidity crisis The pandemic is perhaps the biggest example of a liquidity crisis. The loan moratorium was a big help for people, especially for those who suffered from an income or savings crisis. It provided a relief period to borrowers and prevented them from becoming loan defaulters.

Does the loan moratorium have any drawbacks?

A loan moratorium can come in handy, especially for students. But it can also be a problem if you do not know how to take advantage of it. One of the drawbacks of a loan moratorium is that there is no interest waiver. You may also be liable to additional interest charges. Furthermore, suddenly resuming the loan repayment may be seen as a burden rather than a relief. It changes your monthly budget significantly and increases the overall tenure of the loan.

Are you eligible for a loan moratorium?

You are automatically eligible for a loan moratorium if you have borrowed from a bank or financial institution. A bank requires you to submit an application a few days before your EMI due date.

Conclusion

Before applying for a loan moratorium, it is essential to read the fine print and plan ahead. Ask your bank questions, weigh in your income and savings, and make sure you do not have any dues that could prove to be a financial burden. Understanding how a loan moratorium works can be a significant relief for borrowers.

Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. PropertyPistol does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.