The Reserve Bank of India (RBI) has extended the loan moratorium period by three months to August 31, 2020. This is a breather not just for those who have taken term loans like home, auto and personal loans, but the moratorium extension applies for credit card dues as well. The moratorium on loan EMIs and credit card dues is available for the months of March, April, May, June, July and August.
With this extension, the RBI has permitted banks and credit card issuers to grant three more months of moratorium for payment card dues from June 1, 2020 to August 31, 2020.
For someone who opted for three-month moratorium on credit dues payments, this is what will happen, money-wise, due to the extension.
What happens to your credit card dues?
RBI took this step to provide borrowers temporary relief in the economic upheaval caused by the coronavirus related lockdown. However, by opting for the moratorium you should keep in mind that the interest will continue to accrue on the unpaid dues during the moratorium period, that is, for 6 months.
Adhil Shetty, CEO, BankBazaar.com said that now, with the extension of loan moratorium facility on all term loans (including your credit card dues) by three months, borrowers would get a six-month EMI holiday for dues falling between March 1, 2020, to August 31, 2020. However, it will be worthwhile to re-emphasise this extension of loan EMIs is by no means a waiver on repayments as interest will continue to get accrued on the principal outstanding. “So, simply put, you’ll be well-advised to take the moratorium option only if you’re finding it extremely difficult to repay your loans during these six months. You need to be even more cautious if you’re planning to defer your credit card dues because those carry some of the highest interest rates among all financing facilities,” Shetty said.
Normally, you can defer payment by paying ‘minimum due amount’ and rollover the balance outstanding amount to the next month. In this process the unpaid amount (balance outstanding amount) is carried forward to the next billing cycle and 2-4 per cent interest is levied on the outstanding amount.
Apart from this, if you make any further purchases during these six months, the interest on the new/additional expenditure will start accruing from the very first day and you might end up paying huge interest costs.
Veena Sivaramakrishnan, partner, Shardul Amarchand Mangaldas said that albeit for a limited timeframe, individuals and corporates enjoying credit card limits benefit with the extension of a 3-month moratorium till August 31, 2020. “It is imperative that this not be treated as a blanket extension, as interest continues to accrue on the card dues and needs to be paid. Interest rates on credit cards are usually high and given that the impact of COVID continues to remain fluid, this relief should be availed with extreme caution,” Sivaramakrishnan said.
The moratorium math
Let’s first take a basic illustration of a credit card statement. Here in this example, the total credit card dues to be paid by the customer are explained in two scenarios, assuming the customer transacted on March 1, 2020, and will not be carrying out any fresh transaction thereafter during the moratorium period ending August 31, 2020.
BASIC ILLUSTRATION OF A CREDIT CARD STATEMENT
Transaction date: March 1, 2020
Transaction Amount: Rs 10,000
Statement Date: March 6, 2020
Minimum Amount Due (generally 5 percent of total purchases): Rs 500 [5 per cent of 10,000]
Total Amount Due: 10,000
Amount Due Date: March 26, 2020
Assumed monthly interest rate of 3.5 percent on unpaid credit card bill (rollover outstanding amount)
ACTUAL BILL PAYMENT
Scenario 1: WHEN YOU DON’T OPT FOR MORATORIUM
Bill payment before the due date within the same month
Bill amount fully paid on March 25
Total payment made: Rs 10,000
Interest levied for 25 days (Between March 1 and March 25): Rs 287.7 [25*10000*3.5%*12/365 = 287.7]
Total interest charged = 0
Interest will not be levied as you have made the payment before the due date. In such a scenario, the system will net off the interest charged, and you will not have to pay additional interest levied for it. To pay the credit card bill, you generally get a credit-free period of around 20 days from the bill/statement issue date.
Scenario 2: WHEN YOU OPT FOR MORATORIUM
Bill payment before the due date after three months
Total transaction: Rs 10,000 as on March 1
New Amount Due Date: September 26, 2020
Next statement dates: June 6, July 6, August 6, September 6 (statement will be issued every month)
Transaction done between March 6 to April 6: NIL
Transaction done between April 6 to May 6: NIL
Transaction done between May 6 to June 6: NIL
Transaction done between June 6 to July 6: NIL
Transaction done between July 6 to August 6: NIL
Transaction done between August 6 to September 6: NIL
Interest levied for 6 days (Between March 1 and March 6): 69 [6*10000*3.5%*12/365 = 69.04]
Interest levied for 31 days (Between March 7 and April 6): 357 [31*10000*3.5%*12/365 = 356.7]
Interest levied for 30 days (Between April 7 and May 6): 345 [30*10000*3.5%*12/365 = 345.2]
Interest levied for 31 days (Between May 7 and June 6): 357 [31*10000*3.5%*12/365 = 356.7]
Interest levied for 30 days (Between June 7 and July 6): 345 [30*10000*3.5%*12/365 = 345.2]
Interest levied for 31 days (Between July 7 and August 6): 357 [31*10000*3.5%*12/365 = 356.7]
Interest levied for 31 days (Between August 7 and September 6): 357 [31*10000*3.5%*12/365 = 356.7]
Total interest charged (in Rs): 69+ 357+ 345+ 357+345+357+357 = Rs 2,187
Total amount payable after 6 months will be Rs 12,187 (10,000 +2,187)
Interest on the complete amount of Rs 10,000 will be levied for the next 190 days till new statement is generated. You must make the payment before the due date, which in this case will be September 26, 2020 to avoid late payment charges. If you do not make payment by that time, it can then impact your credit score…..Read More>>