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Despite RBI moratorium, pay your full credit card bill

Credit Card bill interest calculation

RBI as part of Covid-19 regulatory package announced a moratorium of 3 months on all term loans, including credit card bills falling due between 1st March and 31st May. Many misinterpretations are floating around this announcement; however, I say that pay your credit card bill in full despite RBI’s moratorium.

What makes me believe that paying the credit card bill in full is a wise thing to do? Read further to understand it.

So, what is a moratorium?

As per bankrate.com, a moratorium period is a period during a loan term when the borrower is not obligated to make a payment. It is a waiting period before the borrower starts making fixed monthly payments.

Okay, so what is the RBI moratorium for credit card about?

The exact wordings from RBI is below

RBI Moratorium credit card

What it means is if you decide to opt for the RBI moratorium until 31st May, the credit card company or the bank won’t mark you as a defaulter and won’t report you to the credit bureau. Thus, your CIBIL score will not deteriorate and you can continue to be part of that elusive 800+ club. However, interest will continue to accrue in your account.

Does that mean I don’t have to pay my credit card bills?

No. This is not what it means. One has to eventually pay all the outstanding bills. That’s not all, the bank or credit card company will also levy interest, late payment fees and taxes on the same on the amount delayed beyond the regular credit card bill payment date.

Okay then, what are the benefits of RBI moratorium?

The moratorium is targeted at individuals and small businesses, whose salaries or cash flows are affected due to Covid-19 lock-down. These individuals and businesses can opt for the moratorium. The thought here is since currently, everything is under lock-down, and many individuals won’t have enough cash flow to service their credit card bills. By opting for the moratorium, they can choose to pay the outstanding later on, when things came back to normalcy.

That’s okay, I will pay the credit card bill after 3 months? So What?

Well, RBI has allowed credit card holder to opt for the moratorium. However, I would suggest, if one is getting paid regularly and does not have cash flow issues, one should pay the entire credit card bill on time. Reason? One ends up paying a whopping 47%+ interest rate on the credit card. Here is a sample working.

Credit Card bill interest calculation

The assumptions that I made, in this working are:

  • No previous balance carried forward as on 19th
  • Bill generation date is 1st of every month and the bill payment date is around 20th of every month.
  • One has opted for the moratorium and won’t have any amount till 31st

Why one ends up paying such high-interest rates?

Simply, because the banks or the credit card company charges high-interest rates. E.g. HDFC Bank for most credit cards charges 3.49% per month (i.e. 41.88% per annum).  Moreover, one has to pay late payment charges and interest on that too.

And that’s not all, hold your breath, one has cough up GST on all of this. Yes, if one delays the credit card bill payment, one has to pay GST (18%) on the interest amount.

Thus, you end up paying an interest rate of more than 47% during these times. Hence, don’t take benefit of the moratorium and pay your credit card bill on time.

But, I am seriously facing cash flow issues, what should I do?

In that case, I suggest one of the two options. Either opt for a personal loan from a bank and pay off your credit card bills; else, convert your credit card outstanding into EMIs.

For the above options, there will no moratorium. However, interest rates will be much lower than that charged on the credit card. Thus enabling to manage one’s cash flows.

Conclusion

As I mentioned earlier, if one is not facing cash flow issues, do not opt for the moratorium and pay your loan EMIs regularly.  RBI’s package is largely targeted towards businesses and self-employed borrowers giving them temporary relief in terms of a moratorium. However, one has to pay the interest and outstanding amount in full, eventually. Further, all banks and credit card companies will add back the interest to your loan outstanding, effectively increasing your loan.

Let me know,via your comments, if you plan to use the RBI moratorium for credit card bill or any other loan outstanding. Also, do ping me if you want the excel sheet to play around with numbers.

6 Comments

  1. BJ

    Can I get benefits, if I use moratorium benefits and do repayment those three months (33k*3 -11.25%interest) EMI amount as a part payment (1 lakh) after 3 months.
    PL 15 lakhs, first EMI – 5th April, tenure 60 months.

    • Comment by post author

      Harshvardhan Agrawal

      Hi Baskar,
      I didnt get your question correctly. However, if you are asking whether one can get moratorium on loan whose first EMI is in April? Then the answer is NO.
      The announced moratorium is only applicable if the loan was disbursed before 1st March 2020.

  2. mahesh bhosale

    i have hdfc credit card outstanding of Rs 65500, how much interest and total bill amount will be payable after 3 months?? including gst

    • Comment by post author

      Harshvardhan Agrawal

      Hi Mahesh,
      Since I dont the exact billing dates, giving an definitive answer to difficult. However, approximately you may have to pay anywhere between 75000-80000, which would mean an interest rate of over 60%.

  3. Sounds comforting….

    Then why give moratorium as relief when the bank wants to extract money later on.. Its like you do not have food to eat today, so when you get it tomorrow, I will not only take yours, but also of your entire family.

    How does it support an individual? What happens if bank is not able to pay me on my FD for 3 months and takes a moratorium. Can I challenge the bank to pay me 3 times over.

    Can you share the policy letter on moratorium please.

    I have sorted out few banks before for such things and it will be my great pleasure to do it again for the benefit of mankind.

    Here’s my experience on Quora I have shared about dealing with HDFC bank. The bank called me to return my money in my account.

    https://www.quora.com/I-did-not-maintain-the-minimum-balance-in-HDFC-and-now-my-balance-is-negative-i-e-5000-I-cannot-close-it-until-I-pay-it-Will-this-affect-my-CIBIL-score-Will-this-affect-me-in-the-future-or-shall-I-just-avoid-it/answer/Rajat-426

    • Comment by post author

      Harshvardhan Agrawal

      Hi Rajat,

      Thanks for your comment. Here we need to understand that RBI has announced a “Moratorium” on all loans and not a “Waiver”.

      Under a moratorium, the relaxation is dont pay interest to me regularly, pay me afterwards. But the counter on meter will always be running. It wont be stopped or paused.
      For eg: if one is familiar with how education loans works, during the period of studies, one has option to pay nothing. Interest gets added to the principal and when the EMI starts, one has to pay interest on principal and accumulated interest both.

      Now, while everyone would love a waiver, including me but that may not be feasible unless someone else makes good for the losses of banks. So unless, the government decides to make good of losses for banks, they wont waive the interest.

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