Recently, the Reserve Bank of India (RBI) allowed banks to provide a three-month moratorium on fixed term loan and credit card payments. The move was made to provide relief to borrowers affected by the 21-day nationwide lockdown issued by the Central government to prevent the spread of the novel coronavirus, COVID-19.
While this may seem like a relief, it is still advisable to pay your card on time. Here’s why.
If you look at the fine print, while credit card companies won’t call you up during the three-month period, it’s not going to change the fact that if you don’t pay your card bill, the interest will continue to compound. Usually, credit card companies charge 36 per cent to 42 per cent interest per year.
A skipped bill will mean that the interest will only compound despite the RBI’s moratorium. So let’s say, your credit card bill is Rs 1,000, and the bank that offers you the card has a 40 per cent interest for not paying the bill on time, then failure paying during the first billing cycle will mean you will have to pay Rs 140. However, failure of the second month’s bill will then be 40 per cent of Rs 140. And this is in an ideal situation. India also has a GST of 18 per cent that is added onto interest while paying credit card bills
In the long run, this may impact your credit score i.e. the score that is checked in case you wish to apply for a loan or another credit card. While the credit score won’t be looked into during the moratorium, it will be strongly examined after the three-month period.
Besides the compounding amount that you have to pay, credit card companies also charge a late fee. And while that may not be added during this three-month period, the compounded interest is enough initiative to pay your bills on time.