RBI, amid the COVID-19 lockdown, has permitted banks and financial institutions to allow a moratorium on term loans as well as on credit cards. This has been announced as a temporary relief to those whose income and cash flow have been impacted due to the nationwide lockdown.
Credit Card users who opt for the moratorium will not have to pay their credit card bills during1st March 2020 to 31st August 2020. But they would need to pay the entire outstanding amount along with the interest accrued on it during this period once the moratorium ends.
Disclaimer: The details of credit card moratorium will be updated as and when received from the bank
For term loans like home loans, personal loans, auto loans, education loans etc. the interest rates are relatively lower, so you may opt for the moratorium if your income has been severely impacted and you are unable to pay the EMIs.
But since finance charges on Credit Cards are typically around 40% p.a, the interest cost for consumers who opt for the moratorium will be very high. Hence, unless absolutely necessary, you should avoid opting for the moratorium on your credit cards dues.
Here is an illustration to help you understand this. Consider your card has an outstanding amount of Rs. 40,000 and the interest rate is 3.5% per month.
|Date||Details||Scenario 1- Opt-out||Scenario 2- Opt-in|
|19th March 2020||Total Amount Due||Rs. 50,000||Rs. 50,000|
|6th April 2020||Payment made||Rs. 50,000||0|
|19th April 2020||Interest charged (from 6th March 2020)||0||Rs. 1,750|
|GST on interest Charges||0||Rs. 315|
|Total Due||0||Rs. 52,065|
|6th May 2020||Payment made||0||0|
|19th May 2020||Interest charged||0||Rs. 1,822.27|
|GST on interest Charges||Rs. 328|
|Total Due||0||Rs. 54215.27|
|6th June 2020||Payment made||0||0|
|19th June 2020||Interest charged||0||Rs. 1,897.53|
|GST on interest Charges||Rs. 341.55|
|Total Due||0||Rs. 56,454.35|
|6th July 2020||Payment made||0||0|
|19th July 2020||Interest charged||0||Rs. 1,975.90|
|GST on interest Charges||Rs. 355.66|
|Total Due||0||Rs. 58,785.91|
|6th Aug 2020||Payment made||0||0|
|19th Aug 2020||Interest charged||0||Rs. 2057.50|
|GST on interest Charges||Rs. 370.35|
|Total Due||0||Rs. 61,213.26|
*This table is for illustrative purposes only. The rate of interest and the method of interest calculation may vary for different issuers and credit card variants.
The total interest charged (plus GST) during the moratorium period is Rs. 11,213.26.
The above illustration considers that the user did not make any fresh purchases on the card. However, if your card issuer allows fresh purchases, interest will be applicable on them from the date of purchase (unless otherwise specified). This will make the total amount at the end of the moratorium period even more.
Now, in the above illustration, if the user cannot afford to pay the total due at the end of the moratorium, interest will keep adding and late payment charges will also be levied. All of this can easily lead to a debt spiral.
|We advise you to continue making regular payment of your credit card bills, if you can do so, instead of choosing the moratorium period simply because it is offered.|
However, if you are in not in a position to pay your credit card bills currently and have no choice but to opt for the moratorium, you should understand what the moratorium means and how to go about it.
What is Moratorium Period and what does it mean for you?
With this moratorium, banks have allowed customers to defer or postpone the payment of credit card dues until 31st August 2020. There are three most important points to note here:
- No late payment charges will be applicable during this period.
- If you opt for the moratorium, the missed payments will not have any negative impact on your credit score.
- Interest or finance charges will keep accruing on the outstanding amount.
Customers, however, need to understand that this is not a waiver of the outstanding amount on their credit card. The bank is just giving you an option to postpone your payment. After the moratorium period ends, the next statement will reflect the total outstanding amount including the previous dues, fresh purchases (if allowed) and interest charges as applicable.
Some banks have also put restrictions on card usage if you opt for the moratorium. For example, Axis Bank would not allow new transactions on the card during the period and the restriction will be lifted only when you pay at least the minimum amount due as stated in your June 2020 statement. While ICICI Bank has not completely restricted fresh purchases, it has stated that your transaction privileges may be modified at the bank’s discretion during the moratorium period.
How to Opt for the Moratorium Period?
Each bank has come up with its own process to opt for the moratorium. For most banks, if you simply choose not to pay your outstanding dues i.e. make Nil payments on your credit card, it would automatically imply you have opted for the moratorium.
The table below shows how to go about the moratorium facility for some leading card issuers in India:
|Bank||How to Opt|
|HDFC Bank||Automatic Enrolment on missing payments|
|SBI Card||Automatic Enrolment on missing payments|
|ICICI Bank||By providing Registered Mobile Number or e-mail ID on their website. Click here|
|Axis Bank||By providing consent through their webpage. Click here|
|Kotak Mahindra Bank||Automatic Enrolment on missing payments|
|IndusInd Bank||Automatic Enrolment on missing payments|
|RBL Bank||By providing Registered Mobile Number and OTP on their website. Click here.|
If you do not find your card issuer in the list above, please contact their customer care number for details on COVID-19 Moratorium Period.
What happens if you don’t choose the moratorium period?
While some banks require you to inform them about choosing the moratorium period for your credit card dues, others will enroll you for the program automatically if you miss payment during these three months. However, if you continue making regular payment towards your credit card every month, it is considered that you did not opt for the facility.
As mentioned earlier, it is advisable for all consumers to pay their credit card bills timely and in full to avoid a high interest cost at the end of the moratorium period. Opt for the moratorium for your credit card bill, only as a last resort.