Credit card moratorium: Should you pay interest rate of 42% by deferring outstanding balance?

Credit card moratorium: Should you pay interest rate of 42% by deferring outstanding balance?

Credit Card Dues: Amidst the lockdown in the country because of the Coronavirus pandemic, the government has come out with several relief measures for the citizens of the nation. The RBI has permitted banks to allow a moratorium of 3 months on term loan EMIs including credit card outstanding dues. The moratorium period for credit cards dues and loans taken on the credit card will apply from March 1, 2020, to May 31 31, 2020. The moratorium, however, is an option for the cardholders and, therefore, one may keep paying the dues as and when they arise as per the credit card billing cycle and the due date.

Here are a few frequently asked questions (FAQs) that may help you decide better whether to opt for a moratorium or pay the credit card dues now.

When to pay after a moratorium
As a credit cardholder who wants to opt for the moratorium, one can defer the payment till May 31, 2020. By opting for a moratorium, one will need to pay the minimum amount due or total outstanding amount and also the accrued interest charges on the due date falling after May 31, 2020.

Transaction made in moratorium period
By opting for a moratorium, the transactions made till May 31, will not be enjoying the interest-free period. This is because credit card interest-free period of 45-51 days is allowed only if outstanding dues are completed paid by the due date. So, your June 2020 credit card statement will include all previous due amount ( before moratorium), amount transacted during moratorium and interest levied on both these transactions.

How to avail credit card moratorium
If you want to avail moratorium, you have to different ways to do it. For those making credit card payments voluntarily through cheque payment or online mode, just defer and don’t pay now. For those who make payments through ‘Auto Pay’ mode through net banking or mobile banking, will have to turn off the feature. They will have to reactivate once the moratorium ends.

Is it a waiver of dues and interest?
Opting for moratorium does not mean a waiver of outstanding dues and interest amount. It’s just that you are deferring the dues and interest payment. The EMI or credit card moratorium is a deferment of payment and not a waiver of interest. One will have to pay the minimum amount due or total outstanding along with accrued interest charges on the due date after 31st May 2020.

Will it impact my credit score
What happens if I don’t pay credit card bill on time? In all credit cards, no matter what the total outstanding amount is, one is required to pay the minimum amount by the due date. Failing to pay the minimum amount, the card issuer levies a late payment fee which could be as high as Rs 800. Further, the card-issuing bank also reports the same to the Credit Bureaus thus negatively impacting your credit score and credit profile.

However, as per the RBI Circular on COVID 19 relief measures related to the moratorium for borrowers, the credit account details will not be reported to credit bureau during this moratorium period. Some banks have confirmed that even no late payment fee or charge will be levied. It’s better to check from your issuer before making a decision on this.

Should you opt for a moratorium
If your current financial situation requires, you may opt for a moratorium, however, remember you are merely deferring the payment. The full dues will, anyhow, have to be paid later on including interest amount. The interest rate on a credit card is typically between 36 per cent and 42 per cent per annum.

If you are sure about making the full payment in 3 months time, paying interest for that period may still be fine but if you are not sure of your finances getting improved over the medium term, the interest portion on your card will balloon-up into a big debt.

It is also important that you do not go for fresh transactions during moratorium period so as to keep the dues lower. Take an informed decision knowing well that opting for a moratorium will only help you tide over the financial crunch temporarily.


Source:- financialexpress