RBI’s 3 months Term loan EMI repayment pause: Experts’ outlook
Three month pause in EMI repayment for term loan borrower
RBI Governor announces three month pause in EMI repayment for term loan borrower. The EMI Pause is between March 1st 2020 and May 31st 2020. As per RBI data as on Jan 2020 there is 13 lakh crore of Housin RBI data g Loan and 2 lakh crore of auto loan pending.
Let us hear out experts’ opinion about the latest RBI announcement.
Home loan EMIs or Auto Loan EMIs
Due to RBI’s 3 month moratorium few borrowers may not pay home loan EMIs or Auto loan EMIs for next 3 months. Under such scenario, few experts reason out that they will have to pay higher interest rate at the end of 3 months.
Financial loan analysts
Financial loan analysts say that simple interest get levied on the outstanding loan. The loan gets treated as repayment due but not paid. They are of the opinion that this is an extra loan cost which you can avoid with on time EMI repayments. The extra simple interest gets added to 3rd month EMI increasing the monthly bill. The extra simple interest may be a burden on all future EMIs too. Else your loan term can get increased in case of same EMI repayments.
An anonymous finance analyst feels borrowers must pay simple interest in one shot. They end up paying more EMIs. Clarification from the banks on the same is being awaited by experts.
Floating rate loans with loan tenure extension facility
RBI moratorium results in extension of loan tenure by 3 more months. This is workable for floating rate loans with loan tenure extension facility.
The addition interest may reflect on all future EMIs of the borrower. This is an extra burden on borrowers’ budget. But banks may keep EMI amount same but increase number of EMIs. This also affects borrowers’ loan cost.
Cash flow troubles due to COVID-19
MoneyTap’s CBO and Co-Founder Mr. Kunal Varma responded to this RBI announcement as below. He says 3 month EMI moratorium could be welcome for borrowers with cash flow troubles due to COVID-19. The borrowers can delay payment for 3 months. But in the end they are liable to pay off the EMIs with simple interest come June. It is important to note it is not loan waiver but shift in payment schedules.
Postponing EMI repayments
He told salaried income borrowers with steady incomes need to assess their finance. They need to consider revised EMIs and interests too before postponing EMI repayments
Big relief to borrowers
- Home Loans
- Auto Loans
- Education Loans
- Agricultural term Loans
- Retail and crop Loans Borrowers
Reserve Bank Governor announces repayment schedule shift by 3 months after moratorium. It’s big relief to borrowers of home loans. Auto loans, education loans, agricultural term loans, retail and crop loans borrowers too. It applies to Debtors with credit card dues too.
Commercial banks | Co-operative banks | All-India Financial Institutions | NBFCs
RBI’s circular says that “In respect of all term loans (including agricultural term loans, retail and crop loans), all commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies) has permission to avail a moratorium of three months on payment of all installments falling due between March 1, 2020 and May 31, 2020,”
Interest shall continue to accrue on the outstanding portion
The circular quotes that “The repayment schedule for such loans as also the residual tenor, will be move across the board by three months after the moratorium period. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period,”
This RBI move is relaxes loan repayment to retail borrowers, MSMEs and companies.
