Compound interest waiver: Borrowers to pay simple interest on education, housing, auto loan for six months1 min read . Updated: 25 Oct 2020, 01:23 PM IST
In view of the unprecedented and extreme COVID-19 situation, the government announced a major relief for individuals and MSME borrowers by waiver of the compound interest on specified loans for six months period.
In view of the unprecedented and extreme COVID-19 situation, the government announced a major relief for individuals and MSME borrowers by waiver of the compound interest on specified loans for six months period. The loans eligible under the scheme include MSME loans, education loans, housing loans, consumer durable loans, credit card dues, automobile loans, personal loans to professionals, consumption loans. The Government announced a scheme called, 'Scheme for grant of ex-gratia payment of difference between compound interest and simple interest for six months to borrowers in specified loan accounts (1.3.2020 to 31.8.2020)'.
What does it mean? In simple words, the borrowers need to pay simple interest on their loan amount for the six month period between March and August as against the compound interest. The borrowers who have paid their dues on time, will get a cashback from the lenders equal to a sum of 'compound interest paid - simple interest.'
Here are a few important points to note:
The borrowers will be eligible to receive the payment irrespective of whether the borrower had fully availed or partially availed or not availed of the moratorium on repayment announced by RBI on March 27 earlier this year, which was extended on May 23rd until August 31.
Any borrower whose aggregate of all facilities with lending institutions is more than ₹2 crore (sanctioned limits or outstanding amount) will not be eligible for ex-gratia payment under this scheme. Also, the loan accounts should not be non-performing asset (NPA) as on the date mentioned above.
The lending institution has to be either a banking company, or a public sector bank, co-operative bank or a regional rural bank, or All India Financial Institution, a non-banking financial institution, housing finance company or a micro finance institution.
The lenders must credit the difference between compound interest and simple interest to the eligible borrowers by 5 November.