05 MAY, 2021

The Covid-19 pandemic has been a rough patch in everyone’s life, bringing about various unfavorable changes. Many businesses came to a standstill and hundreds of people lost their jobs too. It was a big blow for people who suffered a loss of income but had loans to pay off. Considering the global crisis, the Reserve Bank of India provided relief by offering a moratorium to the borrowers. The moratorium period gave the borrowers some time to gather themselves together before they could resume their loan repayment. But, how long can borrowers take its benefit? Let us know.

What is Moratorium?
During a moratorium, the payment of your loan EMIs is deferred for a specified period. This simply means that you are not charged with any penalty for non-payment of EMI during the moratorium period. The Reserve Bank of India also directed the credit information companies to ensure that the delay in EMI payment does not impact the credit score of the borrowers. This moratorium was given on all term loans including vehicle loans, agricultural loans, home loans, personal loans and even credit card dues. The moratorium period was provided for both principal and interest repayment, i.e. on the entire EMI.

What is the Current Status of the Moratorium?
Initially, the moratorium was announced for three months until 31st May 2020. However, considering that there was no relief in the lockdown or economic slump, it was extended for another 3 months till 31st August 2020. Though initially, the interest was getting accr ued, it was waived off for home loans below Rs 2 crore by a Supreme Court ruling later. Currently, the moratorium has ended and you need to pay your EMIs on time.

What Will Happen on Non-payment of Home Loan EMIs Now?
Post moratorium, borrowers were required to resume the payment of EMIs. Non-payment of EMIs can add to the cost of borrowings and debt burden in the following ways:

Deplete your credit score
Non-payment of EMI post moratorium can adversely affect your credit score. If you fail to pay the EMIs now, the lender could report a delay or non-payment of EMIs to credit information companies. It can hurt your credit score and credit history.

EMI would accumulate
Not paying EMI would pile up the EMIs and the interest payout. This can increase your overall cost of borrowing and extend the loan tenure. In short, non-payment of EMIs post moratorium would increase your debt burden.

To Summarize
Since the moratorium has ended, you should resume the timely payment of your EMIs. If needed, you can transfer your loan to a different lender. Use the home loan EMI calculator to explore your options and apply for a balance transfer if it appear

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.