EMI Moratorium - Is it Good For You?

Some banks have announced a three-month moratorium on EMIs, but is that really helpful?

EMI Moratoriums - Is it good for you?

Graphics by Kamran Akhter

Following the RBI directive, private and public sector banks in the last 24 hours have notified their customers about an optional three-month moratorium on existing loans and EMIs. The RBI had asked banks to consider offering a moratorium to help ease financial constraints that may be caused because of the lockdown.

You may have received messages from your bank appraising you of the situation. But before you consider opting for a moratorium on your EMIs, here’s what you need to know.

The moratorium is a deferment of loan payment, and not a waiver. Banks are offering an optional moratorium from 1 March 2020 to 31 May 2020. Because the moratorium is being offered under exceptional circumstances, this will not affect your credit ratings.

So, what happens once you opt for the moratorium?

You will get a reprieve for three months, which basically means you don’t have to pay the next instalment in June. But, banks will charge you interest on the outstanding principal for the period of the moratorium. Which means if you choose to opt for a moratorium, your payment period could get increased to anything between six to 15 months, or you could see a significant jump in your EMI amount. Here’s what different banks are offering.

What banks are offeringGraphics by Kamran Akhter

Moratorium options from different banks Graphics by Kamran Akhter

Moratorium options offered by different banks Graphics by Kamran Akhter

Moratorium options offered by different banksGraphics by Kamran Akhter

Is the moratorium really helpful?

It can certainly provide you immediate respite in case you are facing a liquidity crunch, but in the long term, you will end up paying more. This is because of several reasons, including the fact that early year interests account for the largest portion of the EMI and can go up to almost 80 percent. Those with older loans will be impacted less if they choose to opt for a moratorium.

Will option for a moratorium help?Graphics by Kamran Akhter

What should you do?

Before arriving at a decision, definitely consider speaking to your lender. They will be able to explain to you what changes you can expect in your loan repayment plans, in case you defer the EMIs.

And finally, only opt for the moratorium if you are facing a serious liquidity crunch or likely to be financially hit badly because of the lockdown.

What to consider before opting inGraphics by Kamran Akhter