Opted for EMI Moratorium? You may not be able to transfer your loan
Note that there is no regulation that bars any customer, including those who have opted for the moratorium, to go for balance transfer of their existing loan.
If you have availed of moratorium on your equated monthly instalments (EMI) and are planning to switch your loan to another lender offering a lower interest rate, it is likely that your application might get rejected.
“Basis the credit policy and risk assessment of the lender, not all balance transfer requests made by borrowers who have opted for moratorium may be approved by the lenders. This is because the lender will assume that borrowers who have opted for the moratorium are experiencing cashflow issues. So unless they are able to convince the lenders that their cashflow problems have been resolved, it may be difficult to get a balance transfer done," said Adhil Shetty, CEO, Bankbazaar.com.
Transferring a loan to a new lender offering lower interest helps in saving interest costs.
A moratorium is generally availed by borrowers who are facing cash flow problems. “As adequate repaying capacity or income source is a requirement for approving loans, the new lender may wait for the end of the moratorium and resuming the repayment for giving a loan to such borrower," said Babu K A, senior vice-president, Federal Bank.
“There is no regulation that bars any customer (including those who have opted for the moratorium) to go for balance transfer of their existing loan," said Babu.
Generally, people go for balance transfer of loan in case of floating rate home loans as there are no loan prepayment charges. Also, in case the rate of interest from the new lender is at least 50 basis points lower and the remaining tenure is 10 years or over, it can lead to substantial savings on interest. For more details read here.
For example, a borrower has an outstanding loan of ₹50 lakh at an interest rate of 7.4% and the remaining tenure is 15 years. If another lender offers him 50 bps lower interest rates, he will save about ₹2.53 lakh in interest outgo. One bps is one-hundredth of a percentage point.
Those who have opted for EMI moratorium, the interest cost would have gone up further due to increased tenure and compounding of interest during the moratorium period. Therefore, for such borrowers, opting for balance transfer may help in saving on interest costs. When you balance transfer your loan, the new lender clears the outstanding loan amount with the existing lender, and a new loan is issued.
What can borrowers do?
As the moratorium ends on August 31st, a borrower can apply for the balance transfer after a few months of repaying regular EMIs. This will help in proving the repayment capacity of the borrower to the new lender.
“Once an account comes out of moratorium and a few EMIs are paid regularly, it can be transferred," said Gaurav Gupta, CEO, MyLoanCare, a marketplace for loan products.
Borrowers can also opt for the restructuring of the loan if they are facing difficulty in paying the EMIs.
“The borrowers can approach the lenders for a one-time restructuring of their loan. The RBI said those borrowers who had been repaying regularly as on 1 March 2020 can be provided a restructuring of their loan through a framework to be decided by the bank. With it, a retail loan tenure can be extended by up to two years with or without the option of a new moratorium. The operational details of the restructuring are now awaited from banks. Borrowers who have had difficulties making EMI payments need to be in touch with their lenders," said Shetty.