The Coronavirus pandemic has forced the entire nation to go into lockdown mode. Millions of Indians are struggling to make ends meet as they find themselves on the verge of losing their job or having to do with reduced salaries and incomes. To offer borrowers a temporary relief from their EMI payments and credit card bills, the RBI has directed all banks and other NBFCs to extend a three-month moratorium on all term loans, coming as a massive relief for cash-strapped borrowers.
However, there is plenty of confusion regarding the Covid-19 relief package from the RBI. One common question raised was, “Does the moratorium defer payments for credit cards and personal loans on credit cards besides term loans?” Yes.
According to the RBI, the deferred payments under the moratorium include all term loan repayments – principal and interest components, EMIs, bullet repayments and credit card dues for the period 1st March 2020 to 31st May 2020.
However, the RBI has left the implementation of the package to individual banks and NBFCs. Each bank will decide how to deal with the accrual of interest and other nitty-gritty. As a result, borrowers have plenty of confusion regarding credit card payment deferments offered.
In this guide, we give you all that you need to know about credit card bill payments and loans on credit cards in the moratorium period.
First, Moratorium is only for EMIs and Bill Repayments and not for Accrued Interests
Under the Covid-19 relief package offered by the RBI, the government has instructed all banks and NBFCs to provide borrowers with a grace period of three months. This means borrowers can skip EMI payments on all term loans including personal loans on credit cards (PLCC) and credit card bill payments for March, April and May if they do not have the required funds. Skipping EMI payments and credit card bill payments during the moratorium will not impact the credit history of the borrower.
However, note that the three-month grace period is only for EMIs and credit card bills. It is NOT a waiver of the loan. You have to repay it starting in June. Also, note that most lenders are likely to charge interest for the unpaid amount during the moratorium. The actual decisions are likely to vary from one bank to another.
There are three options that banks may offer to borrowers:
Extend the loan tenure
Increase the EMI from June
Or demand a bullet payment in June
Accrual of Interest on Credit Card Balance
Just like term loans, credit card balance also gets a three-month grace period. However, postponing your credit card bill payments to June could lead to significant interest charges. In regular times, a cardholder can defer the outstanding payment by paying just 5% of the due amount. The rest is added to the next billing cycle and is charged a nominal interest of 2 to 4%.
However, with the Covid-19 relief package, cardholders can skip credit card bill payments for three months. This could lead to an increasing interest of 6 to 12%. Additionally, remember that any further spends made on the card accrue interest from the first day, leading to astronomical interest charges.
How to opt-in for the moratorium?
Several banks have sent out text messages to credit cardholders asking them if they wish to opt-in for the moratorium. Customers can opt-in for the moratorium by following the instructions mentioned in the text message. Alternatively, a few banks provide the option of opting-in for the moratorium as the default choice. If you haven’t received any notification from your bank, get in touch with your bank for further details.
Additional Reading: Do’s & Don’ts to handle your money during the Corona Pandemic
FAQs on Credit Card Bill Payments in the Moratorium
What happens if I do not pay my credit card bill on the due date during the moratorium?
If you do not pay the bill by the due date, the bank grants you the grace period automatically. However, note that, if you have set up ECS facility for your credit card bills and you have enough balance in your bank account, the amount will be debited from your bank account automatically on the due date.
So, if you wish to pause your credit card payments, make sure to inform your bank about your inability to pay.
Is it recommended to pause credit card bill payments during the moratorium?
If you are facing a severe cash crunch, you can make use of the Covid-19 relief package offered by the RBI. However, if you sufficient liquidity, make sure to pay your credit card bills before the due date to avoid incurring extra interest charges.
Will I be charged late payment fees during the moratorium period?
No. Your bank will not levy any late payment charges for outstanding balances during the moratorium period.
Can I pay my outstanding bill if I opt for the moratorium?
Yes. You can repay your outstanding bill any time during the moratorium period. The interest is charged only for the difference in the number of days between the due date and date of payment.
Will I be able to transact using my credit card if I opt-in for the moratorium?
Yes. But your transaction privileges may be limited. Check with your credit card issuing bank for further details.
I have multiple credit cards with a particular bank. Can I opt-in for moratorium only for a single card?
Again. It depends on the policies of your bank. Some banks may allow moratorium only for specific cards, while others require cardholders to opt-in for all the cards they hold. Check with your bank for specific details.
I have ECS set-up on my credit card bill payments. What happens if I opt-in for the moratorium?
The auto-debit facility will not be triggered if you opt-in for the moratorium on your credit card. The ECS facility will be automatically restored from June.
Will my credit card statement be generated during the moratorium period?
Yes. However, you don’t have to may any payments on it.
Will non-payments of my credit card bill affect my credit history if I opt-in for the moratorium?
No. The non-payments during the moratorium will not reflect your credit history, nor will it adversely impact your credit score. Your credit score remains the same.
When should I make credit card bill payment after the moratorium period?
All unpaid balances and interest accrued must be paid before the due date of the June 2020 billing cycle. The June statement would contain all your previous outstanding balances, and the interest levied on various transactions.
Opt-in for Moratorium only if you face a Severe Cash Crunch
The temporary relief offered by the moratorium is indeed a boon for credit cardholders and borrowers of personal loans on credit cards. However, remember that it could further deepen your financial stress at the end of the moratorium period. So, opt-in for this facility only if you’re facing a severe short-term cash flow crisis. If you can manage to pay your bills on time, make payments as always to avoid falling into an interest-trap.