There is no doubt that the Novel Coronavirus (COVID-19) has left everyone and all sectors across the world affected. The world has more than 1 crore cases with India at the 3rd spot with more than 16 lakh cases and 35000+ deaths.
Because of the unprecedented situation, many people have lost their jobs and are getting pay cuts. Hence, it may not be possible for them to make way for monthly EMIs for many loans and other debts. And the personal loan is no exception. It is where the EMI Moratorium facility of the Reserve Bank of India (RBI) comes into the frame.
The Central bank of India has now extended the EMI Moratorium period till August 2020. When EMI Moratorium was announced in March, around 1 out of 3 borrowers had opted for it with 33% of them going for it – says an online survey.
The pandemic of COVID-19 is now spreading like fire in India. And the number of people facing stress due to pay cuts is opting for the extended EMI Moratorium. Yes, more than 80% of the borrowers who opted for it in the first place, are again going for it.
But after having said that, is going for the EMI Moratorium facility a smart move for borrowers?
Have you availed of the personal loan EMI Moratorium?
Will it be affecting your loan’s monthly EMIs later?
Let’s find out in today’s post!
What is the EMI Moratorium?
The EMI Moratorium is a period in which you don’t need to pay the EMI amount for an ongoing loan and credit card outstanding.
But even when you are not paying, the interest on your EMI amount will continue to accrue. When the EMI Moratorium period ends, you will need to pay the EMI for the last 3 months together. You can calculate your EMI for the Moratorium period using the EMI Moratorium calculator.
It may not be a good thing as you may not be in a position to clear an increased amount during COVID-19.
If your monthly EMI is Rs.1,000 at 10% interest rate, then the interest of Rs.100 will be charged for the period you don’t pay up. Now, once the EMI Moratorium ends, instead of Rs.1,100, you will need to pay Rs.3,300 together.
Experts are of the opinion that unless you are really facing financial stress, it is better to pay EMIs like earlier and not go for the EMI Moratorium.
The concept is clear – the bigger is your monthly EMI, the larger will be the combined EMI amount + interest when the EMI Moratorium ends.
Hence, you may not be in a position to pay a higher amount + interest together.
Personal loan EMI Moratorium
The online survey surveys that about 40% of the personal loan borrowers have applied for the Personal loan EMI Moratorium. Even home loan borrowers with bigger EMIs have availed the facility. Almost half of those are the ones with a tenor of 10 years.
Also, if you are paying higher EMIs on your loan, then skipping 2-3 EMIs will lead to the burden.
Personal loans are among the costliest financial facilities that carry a higher rate of interest on personal loans. And if the Personal loan EMI Moratorium is being availed for 3 months, then paying up after the period ends may lead to the bigger burden.
Hence, if you can, then you must continue to pay per month and not go for the Personal loan EMI Moratorium.
Yes, the EMI Moratorium facility will surely affect your monthly EMIs. The RBI’s relief may be good for someone with a lesser EMI amount with lower interest rates.
But it is surely not for borrowers who have big-ticket loans with a longer tenor.