45 per cent opted for RBIs loan moratorium; How to repay loan post moratorium period ends?
In six-month loan moratorium period (ending on August 31), the interest will continue to accumulate. The accrued interest will be added to the principal, and the equated monthly instalments (EMI) or the tenure will be recalculated by the lender.
The impact of loan moratorium will be severe for borrowers who have taken loans recently because the interest component in the initial years is higher. These borrowers will see higher interest burden, thus the number of EMIs, go up sharply.
To reduce the burden of interest and increased tenure, some lenders are providing the opportunity to pay off the accumulated interest in one-shot at the end of the moratorium. Gaurav Chopra, Founder and CEO of digital lending platform, IndiaLends says, “Arrange for lump sum amount from savings or sell off non-performing investments from portfolio before moratorium comes to an end to pay additional debt.”
Mrin Agarwal, financial educator and founder of Finsafe India says, “Any surplus funds from business or bonus received from your employer should be used to pay off the loans.”
Post loan moratorium, you can also choose to pay higher EMIs and avoid stretching the loan tenure. This way you will not bear burden of additional interest with increased tenure by the lender. If your home loan is linked to the marginal cost of funds based lending rate (MCLR), you can consider switching to repo-linked lending rate to reduce your interest outgo.
You can also consider balance transfer to other bank as an alternative, if interest rates are lower than you are paying now. While transferring the loan consider additional costs which include pre-payment charges, processing fees, etc.
72 per cent respondents are planning to opt for a personal loan in the immediate future; How to avoid it?
To help people tide over any cash crunch during the COVID-19 pandemic, banks and non-banking finance companies (NBFCs) have rolled out personal loan schemes with relaxed norms for their existing customers with good credentials (those having a salary account with stable jobs) or borrowers who have good credit history.
These schemes are offered at low interest rates (7.25 per cent to 14 per cent) compare to regular personal loan scheme to help customers whose cash flows may have got impacted due to the lockdown imposed by the government since March 25. Over 70 per cent respondents in survey are planning to take such personal loan to meet high-priority expenses such as debt repayment, medical emergency, pay education fees, etc.
Agarwal says, “A personal loan should be your last resort. If you are in a tight financial situation, first tap your existing investments which are giving low returns and utilise emergency corpus if you have one.” You can even consider liquidating your gold holdings to tide over this financial crisis. At this time, be frugal and control your expenses. Make a budget and manage your essential expenses out of savings available. Taking a burden of personal loan to pay off your existing debt can backfire, especially in these tough times of salary cut and lay off.
76 per cent respondents are not in a position to make fresh investments at this time; How to continue with investments?
It’s natural that when our salary gets cut, incremental investments suddenly become a discretionary expense. It’s more important, in such case we feel, to get by our living expenses, first and foremost.
Revisit your financial goals and cut down your non-essential expenses. According to survey, over 70 per cent respondent says would spend less on non-essentials which includes entertainment, travel and luxury goods purchase post COVID-19. That’s a start to ensure you don’t stop your investments. Then, try and ensure that your existing systematic investment plans continue as far as possible. If you haven’t faced any salary cuts, then there is no need to stop your SIPs. But if your salary has been marginally cut, Chopra says, “You can reduce your monthly systematic investment plan (SIP) in mutual funds if required, but don’t stop the investments.” You can prefer to invest part of savings in bank recurring deposit, liquid funds or ultra-short term funds to build emergency corpus in this pandemic.