Decoding financial Institutions providing moratorium

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It is better to opt-out if your credit card issuer offers moratorium by default. The decision about the process by the financial institutions which they want to offer loan moratorium to their customers was given by RBI. It was between 1st March and 31st May this year, the Reserve Bank of India ( RBI) had first to the financial institutions to offer a moratorium on term loans and credit, and it was extended for another month until 31st of August. Most of the different banks and card issuers took different approaches which were more suitable for them.

The financial institutions ask that the customers should contact the institutions if they want a moratorium, which is called an opt-in method while others offered by default. To decide the process by which they want to offer the moratorium to their customers, RBI has left it to the discretion of the financial institutions. The moratorium helps a credit card user to differ the repayment of outstanding dues falling between March 1 and 31 May 2020 by up to three months. The moratorium option helps to differ the payment, including interest and principal, what it is not a waiver of interest and principal. In The month of June you should have to pay the interest accrued during the moratorium period. If you have adequate money after meeting essential financial requirements, you should avoid taking the moratorium for the credit card bills, but if you don’t have adequate funds you may borrow money from the short term from friends or relatives to repay your card dues to avoid the hefty interest charges.

Some banks provide loans but its structure is fixed monthly payment. But in credit card, the consumer has the option to pay anything upwards of 5% of the outstanding balance and rotate the rest. Therefor some issuers gave a moratorium by default on credit cards. But in the case of a loan if we are not able to pay any of one monthly installment it would result in delinquency. Therefore financial institutions choose to give moratorium by default. Every month the issuers of the credit card will charge a fixed interest and any of one who doesn’t repay the monthly interest will be added along with the principal outstanding. In the succeeding months, the interest will be levied on the principal amount which includes the interest charges of the preceding months. Memorandum on a credit card may have a chance to lead you into a debt trap, and it is always better to pay off all the dues as soon as you can.

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