So, as most of us know, RBI has allowed a relief of EMIs for various borrowers during this COVID-19 outbreak. Many of us needed this kind of support; however, some are still continuing to pay their EMIs on time. Amusingly, many of the lending institutions have not provided the default option for the payment of EMIs. Borrowers are still looking for a clear picture wanting to know that if there is any expense involved in this EMI relief or are it supported by the government in the form of a subsidy. Moreover, even if there is a cost involved, still there are several choices for the borrowers to choose from for minimizing impact. Credit Bazaar studies this moratorium period in detail below, for giving you an in-and-out depiction of it:
- Remember! It is not an EMI waiver.
Are you bouncing with joy because of the moratorium period granted? Well, time to relax and let the reality sink in, this is not an EMI waiver. Also, the point of truth here is that moratorium is definitely not free of cost. One thing you need to understand that this is not a loan waiver, but factually only a minor shift in the payment schedules of EMI. Interest will continually accrue if a borrower chooses to opt for moratorium. Also, they will have to pay for this added interest along with their regular payments when the EMIs resume after a few months. Hence, more and more you skip the EMIs; the higher cost will have to be paid later on.
- The cost is extremely high for long-term loans:
If your loan amount is too high, the cost of EMI holiday will also be on a higher end. Precisely, for the 3-month moratorium period, there will be a simple interest charged on the outstanding amount for every month at the same rate as the current loan of the customer. In such a situation, in comparison with the current payment schedules, any loan will become expensive. This is obvious because of the added cost of interest. You might really regret taking this decision of taking the moratorium once you start paying this high amount each month. Moreover, if you have high amount long-term loans such as auto loan and home loan, then the cost of repayment will be higher accordingly.
- If possible, opt-out of this choice of moratorium!
If you really want to avoid these high costs and do not want to regret taking the moratorium period later, just do not stop paying your EMIs. Just trust on this and you will thank us later. Only if in urgent need for it and if it is an absolute necessity, the borrowers should go for the moratorium period. While it may provide you with temporary financial relief during the COVID-19 outbreak, you will end up paying added interests at the end of this period of moratorium. So, if you are comfortable now to pay your EMIs as per the schedule, it is surely the easier and cheaper option.
Many lenders are giving choices to their borrowers during this crisis to contact them and provide their consent for regular deduction of their EMIs. Many of them are providing EMI holiday only when the borrowers contact them, otherwise they are deducting their EMIs. Precisely, lenders are extending moratorium option either ‘on demand’ or ‘by default’ option. You can consider to opt out of the moratorium facility if you have ample of cash flow for paying off your EMIs during the given moratorium period. You may also do the same by contacting your lender for the same. An honest discussion regarding the same could also help you in gaining some clarity.
- Prepaying partially!
Okay. We, at Credit Bazaar, aim at letting you know the truth of the market. Many lenders have chosen to offer their clients EMI moratorium but have not asked the borrowers if they want to avail it. No information directly has been offered to them so that they can make their choice. The lenders, on the other hand, are enjoying a good reputation by offering the moratorium during the crisis and are not making efforts to give this information to their clients. Some of the lenders are giving the option to the borrowers that they can contact the bank for allowing EMI deduction. But several borrowers are not aware of this option, and hence, have not availed for the same. Contrarily, the borrowers who have opted for this option have noticed their EMIs have been deducted way before their consent to make regular EMI payments was processes, which generally takes around 7 days. In such a situation, partial prepayment of the loan is an excellent option that one can go for.
Hence, when you have requested for a moratorium and the appeal is denied, you can consider prepaying your loan for reducing the overall interest cost of the loan. So, when you pay the part of the big amount of loan, your principal amount reduces then and there. This helps to reduce the accruing interest considerably on a subsequent basis. The important thing to do here is to follow any communication or messages given by the lender regarding moratorium or it is even better to contact them directly for gaining higher clarity on the further developments. Since there no prepayment penalty on floating rate retail loans such as home loans, hence, borrowers are not going to incur any added costs for doing the same. So, if you are in a position to make this type of partial prepayment, you will benefit long-term by opting to do so. You will just make your future payments of interests a lot easier and less stressed. Since the amount of interest will be low in the upcoming months, you will be able to handle your finances with a peaceful mind.
- When you cannot choose to prepay or opt-out of moratorium:
Okay! You cannot choose either of the options and you are out of choice now. Either your lender is not giving you an option to prepay or you do not have enough funds to pay at the moment. However, you feel that you would be able to afford the payments after a few months, post the moratorium period, and then the best choice will be to pay the accrued EMIs along with the added interest instantly after the moratorium ends. When you pay up instantly, it will be the least costly option for you. Since you are paying immediately for the previous months too, it will not be too pricey on your pocket.
Look, there are various types of auto loans, where there is a fixed interest rate and if any partial prepayment is made, you might have to bear the penalties for it. If you are not given a choice by your lender to opt-out of moratorium for such a type of loan, then the best choice would be to pay the added interest immediately after the EMI holiday.
On the other hand, if you are not in a place to clear the accrued interest immediately after the moratorium ends, then you will have to choose between two biggies. Either you could extend the tenure or bear the increase in the EMI. If the borrower chooses to retain the already-existing EMI, then he/she will have to opt for extension of the loan tenure. But if the existing loan tenure has to be retained, then the borrower can choose to pay higher EMIs.
During this COVID-19 outbreak, the best faces of people and the spirit of the country are shining out. People are coming forward in various ways to help their fellow citizens. There is a feeling of unity even in this period of social distancing. However, at the same time, there are frauds and scams taking place too. Fraudsters are taking advantage of this crisis for making practicing cons. Credit Bazaar aims at spreading awareness about such malpractices and protect its customers from such frauds. Here are a few advisory tips which each person should follow to be financially safeguarded during this crisis, they are as follows:
- Do not share OTP for availing EMI moratorium: Just remember this one thing, always, for your safety, that your bank will never send you an email or call you for your password details or OTP for postponing your interest payments (moratorium) or EMI. Hence, never ever share any private or confidential information such as Customer ID, UPI PINs, mobile banking/net-banking passwords, CVV numbers, OTP, debit/credit card numbers, etc. with anybody asking to verify including so-called bank employees. They are either fraudsters or thieves trying to indulge you into some scam. Also, sometimes, they are so cunning and will confidently try to convince you in giving your personal details in return of some help they could offer you. But you have to be aware and avoid such fraudsters.
2. Disable the ‘Auto Complete’ or ‘Auto Save’ features on your mobile banking application: This might be an easy way out to avoid putting details again and again. However, this has its own set of disadvantages, and some are very grave in nature. It can be very risky and hence, it is best to avoid saving user Ids or passwords for internet banking and mobile banking transactions. Also, do not enable auto-fill, because though it is convenient, anybody coming in contact with your phone could take undue benefit of this information.
3. Do not respond to Phishing texts: Kindly do not follow URLs that you receive from unknown sources or disclose online banking credentials or personal information via text message or e-mail as these can be utilized for identity theft. Your finances can be in danger if such information is taken advantage of. Unknown URLs can lead to hacking portals that can take undue benefit of your personal information.
4. Beware of any Loan verification phone calls: In such a case, the caller will pretend to be somebody from the bank’s technical team or generally, a bank representative. They will seem so confident that you might easily fall for what they are saying. They might even come up with a new appealing scheme wherein you have to give your personal information. After providing such a false sense of security, the caller then tries to trick the victim to give confidential data. If you feel even an ounce of doubt, feel free to email or call the financial service institution related to your bank or your bank itself and ask them about the phone call. You can confirm with them if they are genuinely asking for such information from their customers or if it was a hoax call that you had received from a scammer.
5. Conducting Loan Account Check-ups: It is very crucial to be in complete awareness of your financial health and also the status of your loan accounts. Keep a regular check on your bank accounts and keep a track of your finances. Every time you make a financial transaction, check the balance for making sure that the correct amount is received or paid. Moreover, they could ask about your loan account details and payment of EMIs. They could even scare you regarding immediate payment of your EMIs and ask you for OTP for paying up the same. Don’t rush into such hoax and scares even if they act very convincing. If you feel that there is any discrepancy, instantly contact your bank.
On a whole, we observe that many banks and financial institutions are coming up with loan and EMI benefits for the advantage of their customers during the COVID-19 outbreak. However, not all these offers might be actually beneficial to you in reality. Some might look appealing to you at the present moment, but could lead to financial issues in the upcoming months. Thus, Credit Bazaar provides you complete assistance regarding loans, EMIs, moratoriums, and so on during the lockdown period, so that you can make correct credit decisions during such a crisis, those that you won’t be regretting later on. Contact Credit Bazaar for appropriate assistance for loans and EMIs.
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