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17th March 2021

Superadmin

RBI Loan Moratorium: How Does It Impact Car Loans?

The impact of the pandemic and novel coronavirus has deeply affected both commercials as well as domestic spheres. With several nations adopting a lockdown situation, the economy has also come to a standstill, although the conditions now are in a better state, and people can work from home.

With the number of cases increasing yet again and the economy rising at a snail speed, many think about what the future holds for them. Jobs and offices shall remain closed, and this affects the paycheck numbers of many. While people struggle to pay their loans and make ends meet, RBI India has requested banks to provide a 3-month moratorium that will affect your car loans if you have any. In this article, learn about how the RBI loan moratorium affects the car loan moratorium and should you opt-in or not.

What Is The Need For A Loan?

In late 2019, the pandemic hit the world with the deadliest virus that first emerged in Wuhan’s city. The pandemic has hit lives and the overall global economy. Border trade halted and financial markets staggering, the global economy has come to a standstill. The situation is not much different in India, where administrative decisions such as the sudden shift to the working culture and institutions’ closure worldwide.

Domestic spheres have also taken the burden of both a failing economy and a gloomy health crisis. However, recognising the economic burden carried by a commoner, RBI decided to combat the current economic fallout by taking financial decisions. This includes requesting banks to provide a three-month loan moratorium from march-April-May to every individual that has taken any term loan.

By doing so, the RBI aims to reduce the monthly expenditure borne towards EMIs and loan settlement, providing extra savings and economic relief in times of deep financial crises.

What Are RBI’s Guidelines For Emi Moratorium?: RBI Guidelines For EMI Moratorium

The RBIs move to provide a three-month moratorium for term loans is a cemented step to ease financial burdens on the borrowers. RBI moratorium extension is effective on term loans pending to be paid off by the loan seekers. This means that all term loans, including car loans, home loans, personal loans, loans against property, are eligible under RBIs moratorium.

If you had decided to finance a car with loan approvals, you could choose not to pay the monthly instalments towards the loan for three months, beginning from March, April, and May 2021. This remains effective only if your loan lending institutions accept to honour RBIs request. The borrowers can choose to reject the three-month moratorium and continue with the ongoing repayment schedules. Furthermore, calculating car loan EMI is straightforward and can be done by oneself.

What If You Choose The RBIs Moratorium Scheme?

If you have an existing car loan and choose to opt-in, then you will be in benefit. This scheme waives off repayments for three months, and also neither the credit score nor the loan classification of the borrower’s loan will be affected owing to non-payment of dues during the three months. However, here is what you should know additionally. If the borrower chooses to defer their loan payment, the interest accumulated in these three months will be added to the total principal amount. Thus, as a result of deferring the payments, the tenure of the residual EMIs is bound to increase while the accumulated interest gets added to the final amount.

For high ticket loans such as a car loan, choosing this scheme in a broad spectrum would mean that your interest will be calculated on a more elevated amount every month. Thus, not paying a car loan EMI for the next three months could increase the amount of interest you pay significantly.

The burden will also be more if you have recently availed the car loan to bring home a car that you always wanted. The initial repayment cycle would have to bear a higher interest calculation amount and a substantial increase in the remaining payment tenure.

If you are halfway through the loan payment just at the end of the repayment cycle, the accumulation of interest and tenure expansion would be less burdensome and more manageable. Therefore, the only actual and practical advantage of deferring the payment is having your credit score un-impacted and keeping it immune to lenders.

Overall, with the aim of betterment, RBI has done its part, and now it’s the final call of loan borrowers whether or not to take advantage of this scheme.

Conclusion

RBIs attempt at improving economic relief to those who are burdened due to the pandemic has been the motivation behind the loan moratorium. Folks can surely take advantage of this time waiver for March-April and may repay the loan. However, this moratorium does not reduce the overall principal amount, including interest for all three months. Make your choice and manage your finances accordingly this year.

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