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moratorium
By MONEYMAX FINGROWSEO 1,808 views
FINANCE

MORATORIUM – A BOON OR A BANE?

A Moratorium is a temporary relief from paying your monthly installments to banks or NBFCs. These monthly installments can be of your car loan, house loan, educational loan, or even your monthly credit card. During this period, borrowers have the option of not paying the EMIs to their lenders. There are no penalty charges levied during this period and borrowers are not charged a penalty fee for late repayment as well.

Usually, a moratorium period is for three months. But based on the scenario, the RBI can extend the period for another three months.

In March 2020, because of the pandemic, the entire country was shut down, people were losing their jobs, and businesses were getting closed down. The RBI announced a moratorium period for three months from March 1st, 2020 to May 31st, 2020 due to the pandemic. These three months were highly beneficial as monthly installments were eased for borrowers. It helped the borrowers to take a three-month break from paying their installments to banks or NBFCs. Post three months the RBI decided to extend the moratorium period for another three months depending on the BANKs or NBFCs as the COVID situation wasn’t improving.

A moratorium can turn out to be either beneficial or become a drawback to the borrowers. One must know all the pros and cons of a moratorium before opting for one. Below are stated the pros and cons of opting for a moratorium.

Pros

A Moratorium is a three-month relief period given to borrowers making it highly beneficial to them to survive the severe financial pressure from BANKs or NBFCs during difficult testing times. During this period all types of monthly installments of loans including your monthly credit card are eased for three months giving them enough time to prepare and plan until their next repayment period

Cons

Along with the benefits, a moratorium comes with cons too. It is to be noted that a moratorium is just a temporary three-month relief to pay installments back to the bank. The simple interest of these three months will be added to the principal amount increasing the rate of interest or the tenure period. This process makes it longer for the borrower to get debt-free.

It is to be noted that a moratorium is an option and one must opt for it only if they are unable to pay monthly installments under a severe financial crunch. A moratorium is only temporary relief for a few monthly installments. The principal amount will get increased which increases the rate of interest or tenure thus making it longer for the borrower to become debt-free. Hence given an option the borrower should continue to pay monthly installments which do not disrupt the payment cycle to BANKs and NBFCs. We at MoneyMax, guide and help business owners on when and how they should or should not opt for a moratorium and if there are any other ways to opt of out it and pay monthly installments as per schedule.

An unsecured business loan is a loan that is availed without having to pledge any collateral to a particular Bank or Non-Banking Finance Company. It is usually based on the creditworthiness of the person availing of the loan. An unsecured business loan is appropriate for business owners who are looking into expanding their business or purchasing any equipment for which they do not have liquidity immediately. This is an appropriate source of availing loans because you do not need any valuable assets to pledge in return.

There are a lot of reasons why an unsecured loan is highly beneficial to business owners. Some of them are:

  1. Quicker & shorter process
  2. Collateral /Assets not needed
  3. Appropriate for first-time applicants
  4. Freedom to use the funds for any reason
  5. Boosts your credit rating

Collateral / Assets Not Needed

This is one of the biggest advantages of an unsecured business loan. There is no collateral needed to be pledged in return for the loan availed. This makes it highly beneficial for business owners who do not possess valuable assets to avail of loans. This is one of the biggest reasons why an unsecured business loan works

Quicker and Shorter Process

Usually availing of a loan from a bank or an NBFC can be a complex and long process. But in the case of availing of an unsecured loan, the process is smooth and hustle-free as there is no collateral or assets involved to be scrutinized by the lender. This automatically reduces the process, making it quicker and shorter.

Appropriate for First-time Applicants

An unsecured business loan is highly appropriate for borrowers who have availed of loans for the very first time. Since they do not have a history of their credit score it will be comparatively difficult for them to get a loan from a bank or NBFC. In these cases, an unsecured loan comes to their rescue.

Freedom to Use the Funds

One of the biggest disadvantages of secured loans availed from banks is that there is no freedom to use the funds as per your wish. Banks will require a detailed explanation of the actual usage of the funds. Whereas, in the case of an unsecured loan, there is no interference from the lender’s side. You can use the funds in any manner according to your need and requirement.

Boosts Your Credit Rating

A borrower can avail of an unsecured loan even if his credit score is low. An unsecured loan will not only help him to get faster and smoother funds but will also boost his credit rating if he pays timely and monthly installments. This will make him eligible to avail of further loans with a high credit rating in the future.

Business owners and other individuals are hesitant to seek unsecured business loans due to many misconceptions. But unsecured loans can be beneficial in many ways. We, at Moneymax guide & educate business owners to raise funds for business.

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Author
MONEYMAX FINGROWSEO

We are Moneymax – one of India’s leading Financial Consulting Companies that is about to impact the future of financial services in South India. Headquartered in Chennai.