Have you opted for the EMI moratorium? You may not be able to transfer your loan

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If you’ve been granted a moratorium on your equivalent monthly payments (EMI) and are considering transferring your loan to another lender offering a lower interest rate, your application is likely to be rejected.

“Based on the lender’s credit policy and risk assessment, all balance transfer requests made by borrowers who have opted for the moratorium may not be approved by lenders. Indeed, the lender will assume that the borrowers who have opted for the moratorium encounter cash flow problems. So unless they can convince lenders that their cash flow issues have been resolved, it can be difficult to get a balance transfer, ”said Adhil Shetty, CEO of Bankbazaar.com.

Transferring a loan to a new lender offering a lower interest rate reduces interest charges.

A moratorium is usually invoked by borrowers facing cash flow problems. “As a repayment capacity or an adequate source of income is a condition for approving the loans, the new lender can wait until the end of the moratorium and resume repayment to grant a loan to this borrower,” said Babu KA, vice president. principal of the Federal Bank. .

“There are no regulations that prohibit any customer (including those who have opted for the moratorium) from opting to transfer their existing loan balance,” Babu said.

Usually, people opt for a loan balance transfer in case of variable rate home loans because there is no prepayment charge on the loan. Also, if the new lender’s interest rate is at least 50 basis points lower and the remaining term is 10 years or more, it can result in substantial savings on interest. For more details read here.

For example, a borrower has an outstanding loan ??50 lakh at 7.4% interest rate and the remaining term is 15 years. If another lender offers him interest rates 50 basis points lower, he will save about ??2.53 lakh of interest outflow. A basis point is one hundredth of a percentage point.

Those who opted for the EMI moratorium, the interest cost would have increased further due to the increased tenure and interest mix during the moratorium period. Therefore, for these borrowers, opting for balance transfer can help save on interest charges. When you transfer your loan balance, the new lender clears the outstanding loan amount with the existing lender and a new loan is issued.

What can borrowers do?

With the moratorium ending on August 31, a borrower can request the balance transfer after a few months of repaying regular EMIs. This will help prove the borrower’s repayment capacity to the new lender.

“Once an account comes out of the moratorium and a few NDEs are paid regularly, it can be transferred,” said Gaurav Gupta, CEO of MyLoanCare, a marketplace for loan products.

Borrowers can also opt for loan restructuring if they are having difficulty paying EMIs.

“Borrowers can approach lenders for a one-time restructuring of their loan. The RBI said borrowers who repay regularly by March 1, 2020 may benefit from a restructuring of their loan under a framework to be decided by the bank. Thanks to it, the term of a retail loan can be extended up to two years with or without the option of a new moratorium. The operational details of the restructuring are now awaited from the banks. Borrowers who have had difficulty making their EMI payments should be in touch with their lenders, ”Shetty said.

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