Generally, when a borrower fails to pay his/her credit card bill or loan EMI on time, it’s classified as a default and attracts late payment fees and other penalties. On the other hand, there are no late penalties during the moratorium period. The moratorium period can be thought of as a temporary relief from loan payments.
A moratorium was framed by the Reserve Bank of India during the pandemic as a three-month period, which was later extended to six months. The aim of the moratorium was to help financially distressed customers. This feature could be availed by customers of any bank who have taken loans before March 1, 2020. Also anyone availing moratorium will not have to face any hit on their credit scores or affect the risk classification of the loan.
Moreover, moratorium does not change any of the existing terms and conditions of the loan. But if the loan’s terms and conditions contain certain charges related to the moratorium then those may be applied depending on the financial institutions. Repayment of credit card dues were also deferred under the moratorium period as per the RBI guidelines.
As per the Reserve Bank of India, during the moratorium period, interest continued to accrue on the outstanding portion of the term. Note that the moratorium offered by RBI commenced on 1st March 2020 and ended on 31st August 2020.