Will Moratorium Affect Your Personal Loan Eligibility? Explained in Easy Points
RBI’s EMI Moratorium relief came as a bitter sweet solution for salaried as well as self employed individuals gripped by sudden cash crunch after lockdown. A large base of Term Loan customers including and not limited to borrowers of Auto Loans, Home Loans, Personal Loans and Credit Lines used Moratorium Relief, starting from March 2020 till August 2020.
RBI Governor categorically stated that the Moratorium will not impact the Credit rating of the individual or business opting for COVID 19 relief package. The repayment deferment will not affect the account classification by the lender. But will the Moratorium not affect your credit worthiness at all? Whether the CIBIL changes your CIBIL Score or not, will you be able to avail of a Personal Loan besides the repayment relief? Let’s find out answers to these pertinent questions related to COVID Moratorium and credit worthiness in this article.
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Impact of Moratorium on future EMIs
One of the biggest benefits of COVID moratorium is liquidity relief. But this is a temporary relief, for interest will continue to capitalise during the moratorium duration. After the expiry of moratorium duration, you will be liable to pay the outstanding amount plus the accumulate interest rate. There will be no penalty for delay in repayment. The lenders will share the new repayment schedule before August 31. Thus, your EMIs schedule will be re-set in any of the three forms:
- No change in EMI & Tenor- If you choose to repay the accrued interest amount in a single payment post Moratorium, your loan EMIs will not change. However, tenure will increase according to the number of months EMI deferment had been opted for.
- Increase in EMI- The repayment schedule would be created as per the increase in your liability. In case you do not want to increase the tenor, the EMI size will be proportionally increased.
- Same EMI & Increase in Tenor- The tenor will be increased and EMIs will not be changed.
You can assess the exact impact on your future EMIs by using Moratorium EMI Calculator. This online calculator can help you know about how much interest cost will add to your loan during the repayment deferment period.
Impact of Moratorium on your Credit Rating
As we can see, your ability to repay the additional liability will basically determine your future EMIs or repayment schedule. Likewise, default in EMI repayment after Moratorium will also have a negative impact on your credit score. Though Credit bureaus haven’t marked red flag for Moratorium opt-ins, non payment of EMIs after Moratorium will definitely result in a bad credit history. Eventually it may be seen as non payment since the month you opted for Moratorium.
Why banks are reporting Moratorium to CIBIL?
Banks are reporting Moratorium to Credit Bureaus as Credit Rating is one of the primary factors to assess the applicant’s credit worthiness and associated lending risk. In the absence of history of Moratorium, it will become highly risky for the banks to determine the eligibility of the loan applicants.
Impact of Moratorium on Personal Loan
Moratorium indicates delaying repayments. In all probability, the reason for EMI deferment is cash crunch-which could be short term or a medium to long term. In the absence of adequate cash, if a borrower applies for an additional loan, say Personal Loan how would the lender assess the repayment capacity? There is no change in credit rating till August 2020. At the same time, if someone who has opted for repayment relief of 6 months, their February 2020 credit score is not the true assessment of their credit rating. In this case, where lenders have no way out to assess the creditworthiness of the applicant, they will seek an adequate security for the loan to ensure quality of credit disbursements.
Thus, if you seek a bank loan during the Moratorium, you would require a guarantor or collateral to avail a loan. Also, most lenders currently are preferring to extend loans to their existing customers only. For, they have clear repayment history of their own customers. Hence in case your own bank has not approved your loan applicant, you may require professional help to Apply for Personal Loan. Besides your credit score and repayment history there are several other factors such as your income, other liabilities, loan queries, credit utilisation ratio and credit mix that will impact your Eligibility for Personal Loan. Thus, it is important to meet all these factors before you contact a lender for a loan.
The Moratorium is extended to borrowers to ease their cash gaps owing to financial disruptions caused due to pandemic & subsequent lockdowns. As long as borrowers would be able to meet their repayments successfully, it is not going to affect their credit borrowing capacity. Recently CIBIL also stated that: We would work closely with our member banks and credit institutions to define the data reporting framework basis (after) the announcements made by the RBI Governor, so that during the moratorium period there is no adverse impact on the credit histories and CIBIL Score of borrowers. Thus, there would not be any negative impact on your Credit Rating because of COVID Moratorium. However you would require to use some financial wisdom to stay afloat and rebalance your portfolio.
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