If you had availed of a loan moratorium or deferred your EMI payments (including credit cards) that were due between March 1, 2020 and August 31, 2020, the interest is not waived off and will continue to accrue on the outstanding amount because banks have to pay interest to depositors and pensioners.
During the moratorium period, however, the interest-on-interest or compound interest (which the SC terms as penal interest) is completely waived. Banks had already refunded the compound interest paid by borrowers with loans below Rs 2 crore, and now only those with loans above this amount (mostly, large industries) remain to be paid.
The refund or the compound interest shall be adjusted to the next installment payable instead of refunding it to the borrower irrespective of the loan amount.
Will the scheme be applicable to those who didn’t take the moratorium?
The government had in its October 2020 ruling specified that the scheme will be applicable irrespective of whether a borrower in the specified category took the moratorium fully, partially or did not take it at all.
Who will bear the cost?
The government has specified that it will bear the cost. It is estimated that the scheme will cost the government Rs 14,000 crore, according to brokerage firm ICRA. While the total cost borne by the government for small-ticket loans of up to Rs 2 crore was estimated to be Rs 6,500 crore, the extended waiver will cost an additional Rs 7,000-7,500 crore.
Will I still have to pay extra as interest, if I choose the moratorium?
Yes, you will be paying more as interest, if you choose to avail of the moratorium. Let us see how that works.
For instance, you had taken a property loan of Rs 70 lakhs at 9% interest for a period of 20 years from Union Bank of India. The monthly installment in this case comes to Rs 64,400.
In case you choose to take the moratorium for three months, the interest will continue to accrue which comes to Rs 1,58,684. This will be added to your overall liability.
So, the total amount payable will be Rs 1,54,58,049. In case the moratorium was not availed then the total amount payable will be Rs 1,51,15,396. While you will be paying a higher amount when you repay the EMIs, and on the other hand, if you had not opted for the moratorium, you would end up saving Rs 3,42,653.