No interest on interest for loans during moratorium- Money Bites Newsletter 26 Mar

Money Bites

Short bites to keep you informed of matters that impact your wallet and wealth

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No interest on interest for loans during the moratorium period

What’s going on here?
The Supreme Court gave its ruling on the petition for an extension of the moratorium period and waiver of interest during the moratorium period.

What does the ruling say?
If you remember the RBI allowed a moratorium on all loans between March -Aug last year. Though the moratorium was meant to allow time and relief to the borrowers, they were charged extra interest (interest on interest) during the moratorium.

In Oct 2020, the Union Government announced they would absorb the compound interest cost on all loans (like home, auto, education, personal loans including MSME loans) below Rs 2cr.

This facility was allowed even to those borrowers who hadn’t availed moratorium. (?Remember getting some amount credited to your loan and credit card account?) But some sections who were not satisfied with this approached the apex court for a complete waiver of interest and an extension of the moratorium.

The SC gave a ruling this week which said

• The compound interest benefit should be allowed for all loans irrespective of the amount.
• Complete waiver of interest would hurt the banks who have to pay interest to their depositors.
• No further extension of the moratorium period and those who don’t pay EMIs beyond this period can be classified as Non Performing Assets.

How does this ruling affect you and me?

If you have loans over Rs 2cr expect some relief soon. However, this time it isn’t clear if the govt will bear the burden or pass it over to the banks and NBFCs to make the payment.

Also, if you haven’t paid your loan EMIs beyond Aug 2020, your account may be classified as a Non-performing asset which can cause a big dent in your credit score.

You Ask – We Answer

How much premium would I have to pay for a term insurance policy? – Premchand Pandey

In the last issue of our newsletter, we spoke about why the term insurance policies are going higher from April onwards.

Term insurance policies are meant to insure your life for a fixed period of time. So the premiums you pay depends on many factors like your age when you buy the policy, gender, medical conditions, habits (smoker/non-smoker), profession (a riskier profession like working in an oil rig, the military will have higher premiums), etc.

There are insurance premium calculators available on many websites that you can use to check the premium before you buy a policy for yourself.

? Do you have questions on personal finance & investing? Go ahead and ask away in the comments below. Get featured in our upcoming issues.

Financial Tip of the Week

Diversification- You wouldn’t put all eggs in a basket. Then why invest in a single asset category? Investing your savings in different asset categories (cash, mutual funds, debt, stocks, gold, etc)  can help you balance risk and returns.

• Investing in the international markets can also be a way of diversification. Read? our blog which contains all the details on international investing.

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Until next week,

Best,

Team Finity