Banks are finding it to difficult to underwrite loans in such an environment simply because incomes are uncertain, largely so for self-employed segment.
The RBI EMI moratorium scheme has ended on August 31, 2020. The borrowers were allowed to defer the EMI payments from March till August 2020 without any impact on their credit score. However, going forward, if you are eligible for loan restructuring and end up restructuring your loan, you need to be careful. As per the RBI guidelines for EMI moratorium, there is no impact on credit score if one opts for the moratorium.
“There will be no impact on your credit score if one has not paid EMIs during COVID period. This is in line with the recent announcement where RBI has given moratorium period and customers who were standard on payment till March 2020 can also avail restructuring of their loans. However, if a customer restructures their loan under this scheme and defaults thereafter on the new loan, will have a severe impact on their credit scores,” says Aarti Khanna, Founder and CEO, AskCred. Any default on a loan on which you had availed moratorium till August 31 will impact your credit score. This, however, is subject to the decision on the matter as the case is being heard in the Supreme Court on EMI moratorium.
Reducing EMI burden
If one is still facing issues with servicing the EMIs, there are ways to reduce the debt burden. “One can look at ways of reducing EMI by availing balance transfer and moving to lower interest rates. Evaluate options like home save programs to enjoy flexibility. Negotiate with your banks and ask for an increase in tenor by reducing your EMIs,” informs Aarti.
For those have high outstanding on their credit cards, Aarti suggests, “ In case of high-interest credit facilities like revolving on a credit card can be a very expensive option and may lead the customer into a debt trap. One should first in priority find ways to pay off the credit card dues and not revolve on the same. This can be done by taking a personal loan, Gold loans, loans against shares etc as interest rates would be lower and pay off the card total dues and also cut down future expenses on the card.”
Loans getting difficult to get
But, unlike in the past, opting for loans may not be as easy as it looks. Banks and other lenders are making the underwriting processes stricter than before. “In today’s scenarios availing credit facilities from banks and NBFCs can be challenging for many. Banks are finding it to difficult to underwrite loans in such an environment simply because incomes are uncertain, largely so for self-employed segment where cash flows cannot be ascertained due to this pandemic,” informs Aarti.
“In the given uncertain environment unsecured loans would be difficult to obtain. In fact, many banks today have restricted unsecured lending to their internal customers against some surrogate programs, or above a higher income threshold which they are classifying as COVID resilient sectors like e-commerce, technology etc which possibly might have been immune to the pandemic,” adds Aarti.
Looking for loans
For those who are finding it difficult to get an unsecured loan, the collateral loans may come handy. One can opt for a loan against their existing assets such as gold, bank fixed deposits, etc. And, if you are self-employed and looking to take a loan, here is a word of caution from Aarti – “Many self-employed customers would be tempted to take short term business loans to revive the business, pay employees, pay GST etc. But I would advise people to re-look at their business model and see how the same can be diversified. For example, if one runs a restaurant, chances are that the business may remain impacted for slightly longer given the pandemic. Taking a working capital loan just to meet ongoing expenses would not be wise. One would need to assess if there are other ways to diversify this business model. One would need to give some serious thinking.”