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Home / Money / Personal Finance /  Paid credit card bills on time? You may still get ex-gratia payment

Some diligent credit card customers were surprised when they received a message from their issuers informing that the government’s ex-gratia money has been credited to their accounts. They were taken aback as they had paid their due on time. Many thought their issuer had made a mistake.

Same was the case with those who surrendered their credit cards during the moratorium or cleared off their loans in the past eight months. Banks are paying customers who had outstanding as of 29 February.

If you had made a purchase before 29 February and cleared it after the cut-off date, you could still be eligible for ex gratia amount. Same goes for those who surrendered their cards or repaid their loans after the cut-off date.

Let’s look at the whole process in detail to understand it.

What is ex-gratia payment?

The covid-19 pandemic affected the financial situation of many households. Businesses were shut and many employees were either laid off or their salaries were cut. Due to the financial stress, Reserve Bank of India (RBI) offered six months moratorium to borrowers and credit card customers.

The moratorium allowed borrowers to postpone repayment of loans for six months. They could choose not to pay equated monthly instalment (EMI) during the six months. But it was postponement of EMI and not a waiver. It means, lenders added the interest accrued during the moratorium period to the loan’s principal amount.

Take the example of a borrower who had a car loan (EMI) of 10,000 each month and an outstanding of 4 lakh. An EMI comprises two portions – principal and interest. Say, out of 10,000 EMI, the interest portion was 1,000.

After six months’, the interest accrued on the loan will come to 6,000 ( 1,000 X 6 months), which lenders added to the principal. The new outstanding for the borrower after the moratorium ended would be 4.06 lakh. Lenders recalculated EMIs based on the new principal and consequently, many saw an increase in their monthly outgo as they were charged ‘interest on interest’.

To provide relief to borrowers, the finance ministry came up with a scheme. According to this, retail borrowers and small business who have loans up to 2 crore won’t need to pay the compounded interest or interest on interest that accrued during the moratorium. The ministry made is available to all borrowers and credit card customers whether they availed moratorium or repaid on time.

For this, the government decided on a formula. Through RBI, the ministry asked banks to reimburse the difference between the compound interest and simple interest on loan to eligible borrowers.

Did you receive a small amount?

As banks started crediting the money, many credit card customers posted the amount they received. Some mentioned that they received a credit of paltry sum of 10 or some got even lesser amount. But the money received depends on the outstanding balance and interest rates.

Take an example of someone who had an outstanding credit card amount of 1 lakh as on 28 February and the bank charged him an interest of 3% each month or 18% for six months.

If you calculate the simple interest in the outstanding, it would be 18,000. But if the interest compounded, the total interest would be 19,405. The bank paid the card holder difference of the two amounts, which is 1,405. But if the 1 lakh was a personal loan at 18%, the payout would be 344. These are just examples based on certain assumptions to explain the methodology. The real payout could vary depending on different factors.

If your lender has not offered you any payment, approach the institution as retail loans including home, auto, two-wheeler, personal, consumer durable and education loans are available and also credit card outstanding as on the cut-off date.

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