Loan moratorium: Check out your options for debt repayments

The loan moratorium has been extended till September 28, but borrowers who opted for the payment holiday should not expect further relief. The government is firmly against any waiver of interest that piled up on unpaid EMIs during the moratorium. As things stand, these borrowers would be saddled with bigger loans than at the beginning of the moratorium.

If you had opted for the moratorium, your first priority should be to pay off high-cost debt such as credit cards and personal loans. You should not have put credit card dues under the moratorium in the first place, because these outstandings charge a very high rate of interest. But if you made that mistake, rectify it by paying off these dues as soon as possible. This should be done even if you need to liquidate some investments or assets.

Another option is to convert the outstanding amount into easy monthly installments. There is a cost to be paid for this convenience, but the 15-18% charged on EMI payments is still less than what a credit card will charge.
Loan restructure

Banks have been asked to restructure the loans, but the terms and modalities will vary across lenders and customer profiles. In most cases, customers may be given a choice to extend the repayment tenure or increase the monthly EMI to account for the interest. If you can afford a higher EMI, the second option is better than extending the loan tenure. Extending the tenure would increase your interest burden, so increase the EMI amount to keep it under check.

Of course, the best option would be to pay off at one go the entire interest that accrued on the loan during the moratorium. But it is unlikely that borrowers who opted for the relief would have the liquidity necessitated by such a payment.

Though banks are not obliged to extend the moratorium, some customers may be given this choice by lenders. The offer of another repayment holiday may be tempting, but it would be a mistake. Opting for the moratorium amounts to taking a loan. You are only digging yourself deeper into the debt trap.

Collateralised loan
If you have too many outstanding loans, it would be a good idea to consolidate them under one collateralised loan. Collateralised loans are cheaper because they are less risky than unsecured loans. Take a loan against assets such as property or gold or even your NSCs and fixed deposits to repay the costlier loans. If you have a home loan running and have repaid for a few years, you can take a top-up loan to pay off other high-cost borrowings and consolidate debt under one cheaper loan. For instance, an unsecured personal loan will charge 16-18% while a top-up home loan will cost barely 7-8%.

As you work out your debt repayments, keep a close watch on your credit score. The RBI had stressed that non-payment of dues during the moratorium will not impact credit scores. But now that the payment holiday is over, any slip-up can sully your credit report and jeopardise your chances of accessing credit in future. You may also be slapped with late payment or non-payment charges. These charges had been waived during the moratorium period but will now comeback with a vengeance. Keep in mind that lower credit scores translate into higher rates of interest, so it pays to keep your credit history squeaky clean.

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