Can’t Pay Your Personal Loan? Here’s How Deferment Works

Last Updated : July 17, 2020, 11:28 a.m.

We all know that the economy is in tatters all around the world due to the ongoing pandemic caused by the lethal virus i.e. COVID-19. It’s been more than three months since the full lockdown has been implemented across all states of India. Though the “Unlock” phase has started now, both salaried and self-employed living in India have got affected badly by this. There are so many salaried people who have lost their jobs or faced substantial salary cuts while self-employed professionals faced a sharp decline in their businesses during this period. Things are getting better slowly but it will still take time for things to normalize. One of the major financial problems people are facing is the repayment of their personal loan in these tough situations.

Personal Loan is one of those products that every individual opts for at one point or the other in their life to fulfill their various financial needs. Lenders provide the required loan amount to borrowers so that they can repay it in a fixed tenure via Equated Monthly Installments (EMI). But as we talked about the financial problem that people have been facing, the borrowers are finding it quite difficult to pay the personal loan EMI. If you are one of those individuals, a personal loan deferment can help you. We will be telling you about what exactly Personal Loan Deferment is, how this works, and how you can benefit from it. So, keep reading the article to know more.

What Exactly Personal Loan Deferment is?

On March 27, 2020, India’s Central Bank – Reserve Bank of India (RBI) – announced in its COVID-19 Relief Measure that borrowers who have taken a personal loan from any of the lenders can opt for Personal Loan Deferment by delaying your Personal Loan Installments falling due from the period of March 1, 2020, to June 31, 2020. This period of three months is known as the Moratorium Period. But after the two months, on May 22, 2020, the RBI extended the Moratorium Period for further three months to August 31, 2020. The interest on the outstanding loan amount will keep getting charged during this period.

So, let’s understand this in simple terms. Suppose you are an individual who has an existing personal loan. But due to the financial hardships caused by the COVID-19 crisis, you are unable to pay your personal loan EMIs. So, the RBI has directed all the lenders to let all the borrowers defer their personal loan installments for the Moratorium period of six months. When you defer a personal loan EMI for the moratorium period, you are not absolving yourself of any of these months’ payment. Instead, you are just extending your loan term by the moratorium period you choose.

So, let’s say you have opted for a personal loan deferment of 6 months, so your overall loan tenure will be extended by 6 months. If the earlier tenure was 60 months, your new tenure will be 66 months after opting for the moratorium period. You should keep in mind that you will have to pay the interest amount on the outstanding loan amount for whatever moratorium period you choose. So, you will pay 66 months of interest if you choose to defer the loan.

When you are delaying the loan payment or extending the loan tenure, you are not violating the loan agreement. Any individual can opt for the Personal Loan Deferment from their respective lender by following the simple processes.

For example, the State Bank of India (SBI) has simplified the Moratorium Process of deferring the EMI. The bank had sent an SMS to nearly 85 lakh eligible borrowers so that they could give their consent to stop EMIs if they wanted to. So, the ones who wanted to defer their EMIs were needed to reply with a ‘YES’ to a virtual mobile number, mentioned in the SMS. This reply had to be sent within 5 days of receiving the SMS if the borrower wanted to defer his or her EMIs.

How Much the Personal Loan Deferment Will Cost you?

You must have understood about how personal Loan Deferment works during the Moratorium Period. If we were to put it simply, you will only delay your EMI for this moratorium period, but the interest will keep getting charged on the outstanding amount. So, let’s understand how personal loan deferment will impact your finances.

Suppose you have a 5-year personal loan of INR 6 lakh at an interest rate of 14% per annum. You have been paying your EMIs for the last two years. If you have availed a moratorium period of say 3 months, how will it impact your repayment? Don’t fret, check the table below to know the same.

So, you can see how you will need to pay the extra amount of INR 14,296 as the interest amount during the three-month Moratorium Period that will increase your outstanding principal amount. So, if you don’t want to increase the interest burden when the moratorium period ends, you should discard the Personal Loan Deferment option and pay the EMI amount as usual. You should consider whether you will be able to afford the added payment or not in the future and then, make a decision about it.

What Could Happen if you don’t Opt for the Moratorium Period?

If you are someone who has not opted for the Moratorium Period and don’t want to defer your personal loan, you should keep paying your EMIs as usual. But let’s say you are having substantial salary cuts or your salary has been delayed. Because of this, you could miss your EMI payments on or before the due date. When you fail to pay your EMI on time, you will need to pay several charges such as Overdue Charges, Late Payment Fees, etc.

Other than this, if you miss several EMI payments consecutively, your credit score will get affected. So, it would be better for you to opt for the Moratorium Period if you are facing any kind of financial difficulties due to COVID-19. You may have to pay a certain extra interest amount, but you can save your Credit Report from getting affected. So, you should decide considering all the factors.

How is a Loan Waiver Different from Loan Deferment?

A lot of borrowers think that by opting for a Personal Loan Deferment, they don’t have to pay any EMI amount for the Moratorium Period which is not true. Personal Loan Deferment is different from the Loan Waiver. Your loan tenure will only get extended for the period you choose. You still need to pay the EMI amount after the Moratorium Period. So, you need to understand this pretty clearly that when you opt for the Personal Loan Deferment, your EMI amount will not be waived off.

Will You Get to Pay Overdue Charges for the Moratorium Period?

As we told before also that you won’t need to pay any Overdue Charges for the Moratorium period if you haven’t paid your personal loan EMI. But this will be only applicable from March 1st to August 31st, 2020. After this period, you will need to pay the overdue charges if you miss any of your EMI payments.

Will Your Credit History get affected by EMI Deferment?

A lot of people have this question whether their credit history will get affected if they choose to defer their personal loan as they are unable to pay it currently. Well, you don’t need to worry even a bit about your credit history. During the moratorium period, your credit history will remain unaffected and there will be no decrease in your credit score if you do not pay the EMI of your personal loan. But if you do not opt for the Personal Loan Deferment and miss your EMI payments, your credit history can be affected negatively.