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Moratorium period, Merits & demerits.

       In this pandemic situation RBI has requested all financial institutions like banks, Gramin banks, Home finance, and NBFCs  to provide more 3 months moratorium period (ie: From 01st June 2020 to 31st Aug 2020) in loans. And also advised not to force any of their customers for EMIs (Equated Monthly Installments). The RBI has also reduced the repo rate to 40 basis points and it comes to 4% now, where the reverse repo rate reduced to 3.35% only.

What is a moratorium on loan?
Moratorium- It means a temporary suspension of ongoing activities. As per the guidelines of RBI, All the financial institutions in India are advised to stop the EMIs of their customers for more 3 months.

What is a moratorium period?
A moratorium period is the time during a loan term when the borrower is not required to make any repayment. The loan provider offers a certain period after which the payment will start. Ex- At the time of Volkswagen AMEO launched, It had a scheme in which it was offering a period of 1 year, at the time of buying after which the EMIs will start.

Let’s calculate: Suppose you borrowed 10 lakhs for your car at the interest of 9.2%/annum, which you have to pay in 5 years but you got a moratorium period of 1 year. So the total period is 6years.
In moratorium period the interest will be = 1000000 X 9.2% / 100= 92000
It means your principle will be 1092000 and you have to repay it in next 5years with interest.

Here we want to put some light on the disadvantages of the moratorium period. If you are applying for it, then definitely you will not be asked for repayment and the validity of your EMI will be extended, but you will have to pay the interest for that period. In short, the value of your settlement will be increased because the moratorium includes both the interest and principal component of your EMI.

How can you request for a moratorium?
It varies from bank to bank. You can apply both online and offline. Every bank has its separate forms for it. Simply you have to fill-up the form and submit online and offline and your loan will be considered in the moratorium period.

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