Normally, one can defer payment by paying 'minimum due amount' and roll over the balance outstanding amount to the next month. In this process, the unpaid amount is carried forward to the next billing cycle and 2-4 percent interest is levied on it.
Should you opt for the three-month moratorium on payment of credit card dues being offered by some banks as a relief measure, after a nudge from the Reserve Bank of India (RBI).As per the recent RBI notification, banks are permitted to grant a moratorium of three months for payment of all credit card dues falling between March 1, 2020 to May 31, 2020 but interest will continue to accrue on the unpaid dues during the moratorium period. RBI took this step to provide borrowers temporary relief in the economic upheaval caused by the coronavirus related lockdown.
Let's first take a basic illustration of a credit card statement. Here in this example, the total credit card dues to be paid by the customer are explained in two scenarios, assuming the customer transacted on March 1, 2020, and will not be carrying out any fresh transaction thereafter during the moratorium period ending May 31, 2020.
BASIC ILLUSTRATION OF A CREDIT CARD STATEMENT
Transaction date: March 1, 2020Transaction Amount: Rs 10,000
Statement Date: March 6, 2020
Minimum Amount Due (generally 5 percent of total purchases): Rs 500 [5 percent of 10,000]
Total Amount Due: 10,000
Amount Due Date: March 26, 2020
Assumed monthly interest rate of 3.5 percent on unpaid credit card bill (rollover outstanding amount)
ACTUAL BILL PAYMENT
Scenario 1: WHEN YOU DON'T OPT FOR MORATORIUM
Bill payment before the due date within the same month
Bill amount fully paid on March 25
Total payment made: Rs 10,000
Calculation:
Interest levied for 25 days (Between March 1 and March 25): 287.7 [25*10000*3.5%*12/365 = 287.7]
Total interest charged = 0
Remarks:
Interest will not be levied as you have made the payment before the due date. In such a scenario, the system will net off the interest charged, and you will not have to pay additional interest levied for it. To pay the credit card bill, you generally get a credit-free period of around 20 days from the bill/statement issue date.
Scenario 2: WHEN YOU OPT FOR MORATORIUM
Bill payment before the due date after three months
Total transaction: Rs 10,000 as on March 1
New Amount Due Date: June 26, 2020
Next statement dates: April 6, May 6, June 6 (statement will be issued every month)
- Transaction done between March 6 to April 6: NIL
- Transaction done between April 6 to May 6: NIL
- Transaction done between May 6 to June 6: NIL
Calculation:
Interest levied for 6 days (Between March 1 and March 6): 69 [6*10000*3.5%*12/365 = 69.04]
Interest levied for 31 days (Between March 7 and April 6): 357 [31*10000*3.5%*12/365 = 356.7]
Interest levied for 30 days (Between April 7 and May 6): 345 [30*10000*3.5%*12/365 = 345.2]
Interest levied for 31 days (Between May 7 and June 6): 357 [31*10000*3.5%*12/365 = 356.7]
Total interest charged (in Rs): 69+ 357+ 345+ 357 = Rs 1,128
Total amount payable after 3 months will be Rs 11,128 (10,000 +1,128)
Remarks:
Interest on the complete amount of Rs 10,000 will be levied for the next 98 days till new statement is generated. You must make the payment before the due date, which in this case will be June 26, 2020 to avoid late payment charges. If you do not make payment by that time, it can then impact your credit score.
To pay the outstanding amount for three months on your credit card bill, you generally get a credit-free period of around 20 days from the bill/statement issue date which in this case will be June 6, 2020.
According to IndusInd bank website, "After the moratorium period is over, the entire outstanding dues on your credit card account along with accrued interest charges will become payable as per the June 2020 credit card statement due date."
The benefit of opting for moratorium
- There will be no impact on your credit score
- The issuer will not block your credit card if the bill is not paid during these three months
- No late payment fees will be levied during these three months
Should you opt for the credit card moratorium?
Here moratorium means you can choose not to pay your credit card dues for three months. This further implies that the moratorium is only the deferment of payment and not waiving off the credit card dues.
While, no late payment fees will be levied on your credit card bill during these three months, but the interest on the outstanding balance of credit card dues will continue to accrue for the period of the moratorium. The interest will get added to your outstanding amount and therefore increase your payment burden when the moratorium l gets over and you start paying your credit card dues.
According to financial experts, "You should opt for moratorium on your credit card dues only if you are facing a financial or liquidity crisis during the lockdown, else it is better if you continue paying your credit card dues regularly."
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