We are facing what is probably the gravest economic crisis in at least a decade. At least 40 lakh young Indians have lost their jobs owing to the lockdown, and lakhs of others have been facing pay cuts. Loans have become a burden on many people.
The Reserve Bank of India (RBI), on the 27th of March, 2020, announced that borrowers can now avail a moratorium of three EMIs due between the months of March and May 2020. This was applicable to different categories of loan including personal loan. The moratorium was further extended by another three months, which ended on the 31st of August, 2020. What exactly is a moratorium and what lies in store for borrowers now? Let’s have a look.
What is a loan moratorium or EMI moratorium?
Since salaries were affected to a great extent, so were repayment capabilities. Failing to pay EMIs would’ve affected people’s credit scores by forcing lenders to classify their loans as NPA (Non-Performing Assets). To solve the problem on a temporary basis, a relief or loan moratorium of six months was provided. This allowed borrowers to defer loan repayments by six months without their loans becoming NPAs. Meanwhile, your loan keeps accumulating interest.
Additional Read: Monetary Relief Measures in the Time of COVID-19
Since the EMI moratorium period is over, there was further discussion on extending benefits to borrowers since 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.
What is restructuring and which loans can be restructured?
Under the new scheme, you can get your loan restructured and get an extended EMI moratorium upto 2 years.
Technically, the Reserve Bank has announced restructuring as an option to 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, loans against financial assets granted to an individual.
What is the eligibility criteria for loan restructuring?
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 or pay cut letter or 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 greater than 30 days as on 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.
What are the terms for restructuring?
- 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 loan period with reduction of 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 restructuring of your loan.
Is restructuring advisable?
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 bad as an NPA would.
It is only in our best interests that facilities like 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 Loans can fulfill your immediate financial requirements ranging from marriage to medical needs with flexible terms, tenure, and quick access to money.