Coronavirus pandemic | Big cheer for consumers as RBI gives 3-month break on term loan EMIs

For customers who had availed loans at repo-linked, the cut in repo rate might mean a significant drop in the interest burden on your EMIs.

"The moratorium on term loans, .....will not qualify as a default for the purposes of supervisory reporting and reporting to credit information companies (CICs) by the lending institutions. Hence, there will be no adverse impact on the credit history of the beneficiaries," the RBI Governor said.

This will ensure that your credit score does not get impacted by the permitted three-month delay in payment of EMIs.

RBI has clarified that the three-month moratorium will also apply to credit card dues. Also, while the RBI has permitted banks to allow the moratorium, it depends on whether a particular bank chooses to extend these benefits to its customers.

Also, every bank adds a spread or premium to the repo rate or any other benchmark rate before working out retail loan interest rates. Depending on what the premium is the effective rate benefit on the loans could be lower than 75 basis points.

Hence for individual borrowers where the loan is linked to an external benchmark, the average benefit could be in the range of 25-50 basis points in case the bank decides to pass on the rate cut.

The time taken for the EMIs to come down could be over the next three months. This is because RBI had said in September 2019 that the interest rate under external benchmark would be reset at least once in three months.

However, if you are a borrower who loan is still linked to the marginal cost-based lending rate, the RBI rate cut benefit will be passed on only if the bank cuts this rate. For such customers, switching to an external benchmark-led regime would be advisable.

Under MCLR-linked loans, the reset period could range between six to twelve months and is dependent on not just external factors like repo rate cut but also on internal operating metrics of each bank.

Here are some important things you should know:

-There is no extension in loan duration and there will be only a deferment. So accumulated interest will have to be paid at the end of the moratorium.

-Credit cards EMIs are part of the scheme. So all pending credit card EMI dues can also get a three-month break.

-There will be a break on payment of EMIs for three months only if you bank decides to pass on this benefit. Because RBI has said that banks are 'permitted' to offer a moratorium and this is not mandatory.

-In case your bank permits an EMI break, repayment schedules will be shifted by three months. The important point to note here is that this is not a payment holiday and interest dues will have to be paid at a later date.

-So if you were paying an EMI of Rs 20,000 per month, the accumulated Rs 60,000 during the three-month moratorium would have to be paid over the remaining course of the loan payment calendar.