Moratorium Expires Today. What’s Next? Options for EMI Relief Explained

Moratorium Expires Today. What’s Next? Options for EMI Relief Explained

Since March 2020, retail loan interest rates have nosedived to a nearly 15-year low point. The Reserve Bank of India has slashed cumulative of 115 bps of repo rate since the pandemic outbreak and subsequent lockdowns. Thus chances are high that Rates of Interest for Your Personal Loan & Home Loan have reduced more than 100 bps as you opted for EMI break during March-August 2020.

Post August 31, your EMIs will be due again and if you decide to continue with the same tenor the size of EMI will increase marginally to accommodate the capitalised interest rate during 6 months of EMI deferment. On the other hand, if you keep the EMI intact your tenor will increase for 9-10 months, adjusting the accumulating rate of interest over the loan duration.

Personal Loan & Home Loan Interest Rate Comparison after & before RBI’s Repo Rate Cut-

Bank Product RoI  on March 21 2020 RoI on Aug 31 2020

SBI

Home Loan

7.95 to 8.70%

7.00 to 7.85 %

 

Personal Loan

10.35 to 16.40%

9.60% to 15.65%

HDFC Bank

Home Loan

8.00% to 8.50%

6.95 to 7.85%

 

Personal Loan

10.75% to 21.30%

10.75 % to 21.3%

ICICI Bank

Home Loan

8.70% – 9%

6.95 to 8.05%

 

Personal Loan

11.25% – 22%

10.75% to 19.00%

PNB

Home Loan

7.95% to 9.35%

7.00 to 7.60%

 

Personal Loan

9.95% to 1450%

8.60 to 11.65

Axis Bank

Home Loan

8.55% – 11.50%

7.75% to 8.55%

 

Personal Loan

12%% – 24%

10.75 to 11.25%

 

As we can see the rate trends in the table, the lending rates have been drastically revised in past few months. Comparable rate cut is also observed for new Fixed Rate loan products such as Personal Loans and Car Loans.

If your loan was linked to external benchmark the lower rate would have effectuated immediately or it will change as per the reset date of MCLR tenor linked with your loan. For fixed interest rate products, the lender would not change the rate of interest.

In face of COVID 19 induced financial disruptions, many people have lost their business/ jobs or bearing the pay-cuts. In all, the cash flow constraints have aggravated due to subsequent lockdown & troubled business activities. In such times, whether you opted for Moratorium or not, it is useful to lock-in the benefit of low rate regime.

Now, let’s explore the available options for securing the Best Interest Rate for Your Ongoing Home Loan/ Personal Loan with your bank.

1. Loan Restructuring

What is loan restructuring?

Loan restructuring is basically recasting or redefining a loan’s entire structure. It may entail new documentation and loan agreement. Restructuring is different from loan scheduling which includes only resetting the term and rate of EMI. Under RBI’s current provision for loan restructuring a borrower will be able to reset loan’s EMI, tenure, & interest rate. For customers who are impacted by COVID financially, the bank may allow a new loan for accrued interest rate during 6 months of moratorium.

How to apply for restructuring of loan after Moratorium?

The exact contours of restructuring will be defined by respective bank in the coming week. Thus precise terms may vary from bank to bank. However, the RBI has set out two conditions for availing of restructuring benefit amidst pandemic:

A) Your monthly income should have been impacted due to COVID 19.

B) Your Loan account should be standard as on March 1, 2020.

If you are meeting these two eligibility standards you can contact your bank and ask for the available options to reset your loan EMI.

2. Balance Transfer

What is Balance Transfer?

Balance Transfer is the facility to apply for a new loan for the balance amount of your ongoing loan at a lower rate of interest. It can be applied through to your present lender or a new bank. The refinancing of the loan however involves nominal processing charges and thus it is recommended to do the cost benefit analysis before opting for the option.

Amid current interest rate regime, as interest rates have drastically declined by over 100 bps, it will be beneficial to apply for Balance Transfer of your Personal Loan/ Home Loan. You must compare the Balance Transfer Interest Rates before filling the loan application.

How to apply for Balance Transfer after Moratorium?

Amids COVID19, it is important to understand that Balance Transfer option will not be available to those who have availed of Moratorium in August 2020. To approve the Balance Transfer request a lender requires you to be regular in EMI repayments.

Most banks will approve the balance Transfer application only when you have been serving at least last two EMIs in time. In case you are planning to tap the benefit of lowered EMI, ensure regular payment of your account.

3. Switch interest rate regime

Effective from October 1, 2019, all banks started lending Home Loans linked to external benchmarks. Previously Home Loan were mostly linked to MCLR, and that too- 1 year MCLR. Thus if you are serving Home Loan EMIs for older than OCT 2019 loan, you are serving a substantially higher rate of interest.

You can apply for switching your Home loan to RRL either to your bank or to a new lender. Amid COVID difficulties, this can save you as much as 150 bps in Home Loan. As a rule of thumb, if you are saving anything above 50 bps on interest rate, it is worth applying for a switch of loan interest rate structure.

How to apply for interest rate switch?

You can contact customer care and share your consent for the same. The bank will share application and details. This will entail some documentation as well.

4. Manage your debts

After 6 months of Moratorium, applying for extension of Moratorium is no solution. For EMI holiday involves capitalisation of interest rate and thus mounts up your liability. Herein it is recommended that you manage your loan. You can use any of these methods to lower your liability:

  • Prepaying/closing your accounts. You can either repay small loan accounts first (snowball method) or high interest rate accounts as per your financial situation.
  • Consolidate accounts to a secured Personal Loan. This will ensure lowered EMI.
  • Till the time you could successfully repay your loan, make sure you limit the usage of Credit Card and not raise any fresh loan further.
  • Following these steps your debt will reduce within few months. It will also improve your credit rating at the same time. This will henceforth help you borrow at lower rate in future. You may then apply for Balance Transfer at lower rate after 12 months.

COVID Times have been difficult, but you can certainly sail through the testing waters with your perseverance. You can certainly prove that tough times never last, but tough people do!

 

Also Read: Your Bank May Recast or Defer EMIs for Personal Loan/ Home Loan Before Aug 31

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