A Moratorium is a temporary relief from paying your monthly instalments to banks or NBFCs. These monthly instalments can be of your car loan, house loan, educational loan, or even your monthly credit card. During this period, borrowers have the option of not paying the EMIs to their lenders. There are no penalty charges levied during this period and borrowers are not charged a penalty fee for late repayment as well.
Usually, a moratorium period is for three months. But based on the scenario, the RBI can extend the period for another three months.
In March 2020, because of the pandemic, the entire country was shut, people were losing their jobs, and businesses were getting closed down. The RBI announced a moratorium period for three months from March 1st, 2020 to May 31st, 2020 due to the pandemic. These three months were highly beneficial as monthly instalments were eased from borrowers. It helped the borrowers to take a three-month break from paying their instalments to banks or NBFCs. Post three months the RBI decided to extend the moratorium period for another three months depending on the BANKs or NBFCs as the COVID situation wasn’t improving.
A moratorium can turn out to be either beneficial or become a drawback to the borrowers. One must know all the pros and cons of a moratorium before opting for one. Below are stated the pros and cons of opting for a moratorium.
PROS
A Moratorium is a three-month relief period given to borrowers making it highly beneficial to them to survive from the severe financial pressure from BANKs or NBFCs during difficult and testing times. During this period all types of monthly instalments of loans including your monthly credit card are eased for three months giving them enough time to prepare and plan until their next repayment period
CONS
Along with the benefits, a moratorium comes with cons too. It is to be noted that a moratorium is just a temporary three-month relief to pay instalments back to the bank. The simple interest of these three months will be added to the principal amount increasing the rate of interest or the tenure period. This process makes it longer for the borrower to get debt-free.
It is to be noted that a moratorium is an option and one must opt for it only if they are unable to pay monthly instalments under a severe financial crunch. A moratorium is only temporary relief for few monthly instalments. The principal amount will get increased which increases the rate of interest or tenure thus making it longer for the borrower to become debt-free. Hence given an option the borrower should continue to pay monthly instalments which do not disrupt the payment cycle to BANKs and NBFCs. We at MoneyMax, guide and help business owners on when and how they should or should not opt for a moratorium and if there are any other ways to opt of out it and pay monthly instalments as per schedule. For more details, visit www.moneymaxfingrow.com, or call 9092090817 or write to us at dhejo@moneymaxfingrow.com.
