A loan is when you borrow money from a bank or financial institution in exchange for repayment with principal interest for a particular period. Loans help fulfill all your emergency needs, and you can repay them in installments, but some amount of interest is applied to the whole amount.

But due to the pandemic, many people faced problems filling the loan installments as there was no source of income. Then the banks decided to give a period to them in which they need not pay the EMIs.

What is a moratorium?

A moratorium is also known as the “EMI holiday.” Moratorium generally is a period in which the loan borrower is relaxed not to make a payment. It is a waiting period in which the borrower is relaxed from the EMIs, this gives the borrower some time to relax, but they have to start making payments again once that period ends.

Loan Moratorium for 2021

Reserve Bank of India (RBI) governor Shaktikanta Das, in an unscheduled virtual speech on May 5, 2021, said all the Indian banks to offer a second loan moratorium. They said this to support borrowers who are not currently able to make EMI payments due to the impact of the second wave of the Coronavirus Pandemic in the country.

The borrowers, including individuals, small businesses, MSMEs, etc. and if they have not availed the moratorium, including the Resolution Framework 1.0 dated August 6, 2020, and if they are considered as ‘Standard’ as of March 31, 2021, they are eligible for the “Resolution Framework 2.0”. RBI has given a moratorium of six months to the borrowers to repay the bank dues due to the second wave of COVID-19.

The borrowers are eligible for the second moratorium considering the conditions. They can apply for it until September 30, 2021. After that, the banks will take 90 days to offer the moratorium facility to the borrower.

Points to remember while applying for a moratorium

The borrower must remember that the government has given you six months to pay your EMIs, that EMI is just postponed, the moratorium doesn’t mean that you don’t need to pay the EMI.

One should also remember that they have to pay extra as interest if you avail a moratorium. For example, suppose you have taken a loan of 70 lakhs at 9% of an interest rate for a tenure of 20 years, and you pay the EMI of Rs.64,400 monthly. Then if you take a moratorium of 3 months, the extra interest you have to pay will be Rs.1,58,684, which will be added to the overall loan amount.

Getting a moratorium will not affect your credit score, which will not be shown as a default in your credit score. As the government itself gives this moratorium, then this will not affect your credit score.

Also, remember that penalty charges are taken from you for not paying the EMI during this period, and your credit score will not be affected during this tenure.