For many of us, the outbreak of Covid-19 pandemic has been quite a drain on our finances.The six-month moratorium on loan repayments provided by banks eased the pain of those who opted for the relief.

The moratorium on loan EMIs expired on August 31. The Supreme Court is currently hearing a matter regarding waiver of interest on loan moratorium. Hence more clarity on the moratorium and interest that banks have been charging on your loan under moratorium is awaited. However, it is advisable that you prepare yourself to resume your loan repayments and know your options. If you have given an auto debit mandate, then your bank will start debiting your EMIs from your account on the same day of the month as agreed upon earlier.

Will your EMIs remain the same as it was before opting for the moratorium? Can you pay a lump sum amount to clear your dues post moratorium period? Will the bank grant any additional relief if you are still unable to meet loan commitments ?

Here, we attempt to answer these queries based on our interactions with banks and FAQs put out on certain websites. These may of course change, post the SC’s final order.

No change in EMI amount

If you availed of the moratorium relief, you must remember that your bank would have continued to charge you interest on the outstanding loan amount at the rate applicable for the respective loan during the moratorium period (this is currently under review by the SC). This interest has been added to your principal amount--essentially the unpaid EMIs along with the accrued interest have been added to your loan outstanding.

This will result in the increase in the tenure (residual) of your loan and not your EMIs. Hence your EMI would remain the same but the tenure of your loan would have increased. For instance, if you had taken a home loan from SBI of ₹30 lakh with a remaining tenure of 15 years, the additional interest payable would be about ₹4.54 lakhin case you availed moratorium for six months. This would lead to increase in tenure of your loan by 16 months (additional 16 EMIs). The revised repayment schedule will be mailed to your registered email ID. You can also login to NetBanking and download the repayment schedule.

As has been communicated by various banks before and advised earlier ( https://www.thehindubusinessline.com/portfolio/personal-finance/go-for-emi-moratorium-only-if-you-are-cash-crunched/article31235150.ece ), deferment of big-ticket loan payments can pinch you quite a bit, given the substantial increase in the overall interest and loan tenure. But if you have still opted for the moratorium, owing to your financial situation, start making payments right away.

Can you pay the entire EMIs pertaining to the moratorium period at one go to lessen the pain? If you have ample funds, that would seem a prudent move but it is likely that your bank may not allow such repayments. According to HDFC Bank website, the unpaid EMIs cannot be paid in lump sum. But you can contact your bank to see if any option is available for you to settle payments in lump sum. Also, you can foreclose your loan if you have sufficient funds. Do check for foreclosure charges though.

Track your credit score

If you opted for the moratorium, remember that it would not have qualified as a default and hence your credit score should not have been affected. But it is advisable that you run a check on your credit score to ensure that there has not been any adverse impact on it because of opting for the the moratorium. Credit scores are given by credit bureaus such as CIBIL and Experian. You can approach them if you notice any change in your credit score during the moratorium period.

But note that any delay in payment of dues after the expiry of the moratorium could qualify as default and impact your credit score. Hence, if you have the necessary funds, clear your dues on time now onwards to avoid a negative impact on your credit score which can affect your loan-taking ability in future (may also lead to higher loan rates in future).

Restructuring is an option

All of the above mentioned points apply only if you are comfortable paying your EMIs. What if you are still cash-crunched and are unable to resume EMI payments ?

In a bid to provide some relief to borrowers amid the pandemic-induced crisis, the Reserve Bank of India (RBI) had allowed banks to restructure loans across the board -- auto, credit card, housing, personal loans, education and loans given for investment in financial assets such as shares, debentures etc.

Restructuring normally involves rescheduling of EMIs (maybe lower outgo), grant of additional moratorium or extension of loan tenure to allow borrowers some breathing space. However, individual banks may or may not grant such relief based on their assessment of the borrower’s income stream, past record or other parameters. Hence, check with your bank on what they can offer you.

In any case, the maximum period by which the loan can be extended (if restructured) is two years, according to the RBI regulations. Also, you are eligible for a loan restructuring only if your account was ‘standard’--- not in default for more than 30 days as on March 1, 2020.

Above all if you are able to source additional funds and repay your EMIs that would always be a better option than going in for restructuring, which can increase your burden over a period of time and may impact your credit score too.

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