Get the Tata Capital App to apply for Loans & manage your account. Download Now

Blogs

SUPPORT

Menu  
 
Apply Now
Apply Now

Tata Capital > Blog > COVID-19 > Government Updates > Moratorium extension – What is the moratorium extension in the loan & EMI?

Government Updates

Moratorium extension – What is the moratorium extension in the loan & EMI?

Moratorium extension – What is the moratorium extension in the loan & EMI?

In March 2020, amidst economic uncertainties arising from the COVID-19 pandemic, the Reserve Bank of India (RBI) allowed borrowers to avail a moratorium period. Initially, the loan moratorium extension applied to EMIs due between the months of March and May 2020. However, it was later extended by another three months, continuing until August 2020.

While many borrowers learnt about the relief for the first time, it is valid even today. So, what exactly is a moratorium extension, and how does it help borrowers? Let’s have a look.

What is the moratorium period in a loan?

Since salaries were affected to a great extent during the COVID-19 pandemic, so were repayment capabilities. Failing to pay EMIs would’ve affected people’s credit scores by forcing lenders to classify their loans as Non-Performing Assets (NPAs). To solve the problem on a temporary basis, a relief or loan moratorium extension of six months was provided. This allowed borrowers to defer loan repayments by six months without their loans becoming NPAs. Meanwhile, the loan kept accumulating interest.

What happens after the EMI moratorium ends?

Since the EMI moratorium period is over, there was further discussion on extending benefits to borrowers, as the economy is still in a very bad shape, and people are only facing bigger financial constraints. The earlier moratorium facility could’ve been availed by anyone regardless of the lockdown’s effect on their finances. However, now, a restructuring option has been made available for genuinely affected citizens.

EMI moratorium extension & loan restructuring: How does it work?

Under the new scheme, you can get your loan restructured and get an extended EMI moratorium of up to 2 years.

Technically, the Reserve Bank of India has announced restructuring as an option for all personal loans. It must be noted that the term ‘personal loan’ here includes all types of secured and unsecured loans, such as consumer loans, home loans, education loans, and loans against financial assets granted to an individual.

Eligibility criteria for loan moratorium extension

The first criterion for being eligible for loan restructuring is that your repayment capacity should be seriously affected by the lockdown. This could include losing a salaried job, a reduction in salary, as well as being self-employed and unable to repay your loan. You can approach the bank with your termination letter, pay cut letter, bank statement, or any other document that helps the bank conclude your inability to repay the loan.

The second criterion is that your loan must not be overdue by more than 30 days as of the 1st of March, 2020. If your loan was already an NPA on the aforementioned date, it won’t be eligible for restructuring.

Even if you have paid your EMIs on time and not availed the loan moratorium option previously, you can be eligible for restructuring, given that you can prove your incapacity to repay your loan due to the pandemic. In case you had availed the loan moratorium before, the moratorium period will be excluded while calculating your outstanding period.

Terms & conditions for loan moratorium/EMI extension

  • The specific terms for restructuring will differ from one bank to another.
  • Banks have the right to refuse restructuring on the basis of borrowers’ financial standing and credit history.
  • You can surely negotiate terms with your bank, including extension of the loan period with a reduction of the EMI amount.
  • If you stick to the restructured plan offered by your bank, your loan will be treated like a regular loan, and your credit rating will remain unaffected.
  • You need to approach your bank by the 30th of December, 2020, to apply for the restructuring of your loan.

How to apply for moratorium extension: Step-by-step process

You must follow the steps mentioned below to avail of a moratorium period:

  1. Check eligibility with your lender: Discuss with the lender to understand their specific moratorium policy, terms, and application process.
  2. Submit a formal request: Contact the lender via email or their website and formally request a moratorium. You must attach supporting documents to prove your inability to repay the loan. These include salary slips, termination letters, medical certificates, etc.
  3. Await review and understand the revised terms: Let the lender review your application. Once approved, make sure you discuss the new loan terms. These include loan tenure, repayment schedule, and accumulated interest implications.
  4. Share your agreement and maintain records: If you agree to the revised terms, give your consent in writing. Also, ensure that your credit report doesn’t show you as a defaulter.

Moratorium extension impact: Interest accruals & repayment implications

A moratorium period is a short-term relief, wherein you can skip paying your loan EMIs. But what happens to the interest? The interest continues to accrue on the outstanding loan amount, increasing the overall loan cost. Once the extension ends, the lender can increase the EMI amount. Alternatively, the lender can make the loan tenure longer.

Let’s understand interest accruals and the repayment implications of a moratorium through an example.

Suppose you have a home loan of Rs. 20 lakh at 8% interest with an installment of Rs. 16,700 per month. If you take a 6-month moratorium, you save EMIs temporarily, but an interest of around Rs. 80,000 keeps adding up. After the moratorium ends, you will either pay an EMI of around Rs. 20,000 per month for the remaining tenure or the loan tenure will extend by several months. This is done to recover the accumulated interest. Thus, interest accrual increases the total amount you repay over time.

Is a moratorium extension or loan restructuring a good idea?

If you have been facing a financial crunch due to the lockdown and are finding it very tough to repay your loans, you should opt for restructuring. Do remember that this will be reported to CIBIL. However, it won’t affect your credit score as badly as an NPA would.

Conclusion

It is only in our best interests that facilities like the EMI moratorium have been made available to us. Be assured and avail them as long as you take an informed and prudent decision. If you have been cash-strapped and are wondering about where to get a personal loan in the first place, don’t fret. Tata Capital’s Personal Loan can fulfill your immediate financial requirements, ranging from marriage to medical needs, with flexible terms, tenure, and quick access to money.

Know about EMI Moratorium

FAQs

What is the moratorium period in a loan?

A moratorium period or moratorium extension is a temporary relief banks offer, allowing borrowers to skip EMIs. The borrower’s credit rating isn’t affected by a moratorium, but the loan interest keeps accumulating.

Can the EMI moratorium extension affect my credit score in India?

In India, a moratorium does not affect your credit score if it is approved and reported correctly. However, unpaid EMIs without approval can negatively impact it.

How can I apply for a loan moratorium extension from my lender?

You can apply for a loan moratorium by contacting your bank or lender through email, branch visit, website, or customer care. Make sure you submit the request with valid reasons.

Is interest charged during the moratorium extension period?

Yes, interest usually continues to accrue during the moratorium period. It is added to the loan balance or spread across future EMIs.

Which types of loans are eligible for RBI moratorium extension?

The RBI-announced moratorium relief schemes applied to home loans, personal loans, vehicle loans, education loans, and MSME loans.

What documents are required for the EMI moratorium extension application?

To avail a moratorium, you need to submit an application request with the loan details and your identity proof. You must support the application with your termination letter, pay cut letter, bank statement, or any other document to prove your inability to repay the loan.

Disclaimer

Most Viewed Blogs

Trending Blogs

Calculator

Personal Loan EMI Calculator

Home Loan EMI Calculator

Business Loan EMI Calculator

Used Car Loan EMI Calculator

Two Wheeler Loan EMI Calculator

Loan Against Securities Calculator

Loan Against Property Calculator
More Tools
Our Subsidiaries
Our Private Equity Funds

Useful Links and Resources

Policies, Codes & Other Documents

Tata Capital Solutions & Services

Uh oh, something went wrong

Please try again later.

Most Important Terms & Conditions - Home Loans

Download in your preferred language

Download