EMI Moratorium- What to do

Warm Greetings!

This is in continuation with the RBI’s announcement on the 27th Mar-2020 to provide the moratorium on all the loan facilities to be extended for 3 months. The PSU banks and private banks have started offering these moratoriums to their borrowers. At this juncture, the borrowers are in confusion on what to do.

What does it mean to you?

The RBI’s announcement on the 3 months moratorium on all loans. This means that the principal payment can be postponed for a period of 3 months without any delinquencies. It doesn’t affect the individual in anyway on their credit score. However, the interest for the period of 3 months will be added to the principal. The principal amount will increase to the extent of 3 months interest.

Do you have to Opt for the moratorium?

As per the RBI’s announcement on the 3 months moratorium, there is only the postponement of EMI and no holiday for the interest accrual. If the interest is added to the principal, the loan tenure will be extended to the tune of the interest added to the principal. It is not the exact extension of  3 months added at the end of the tenure. The longer the loan tenure, the longer the duration of repayment.

For example, if someone availed a loan of 50,00,000 at 9% interest with the tenor of 20 years. Assuming the remaining tenure of 19 years, then the tenure will be extended for 10 more months instead of adding 3 months at the end of the tenure due to the interest accrual at the beginning of the moratorium.

What should you do?

If you are a government employee or a private sector employee without any threat on your employment, would be advised to continue the EMI and opt out of the RBI’s moratorium to save the interest.

If you are in a business or in a private sector employee having a threat on the cash flow, it is recommended to opt in for the RBI’s moratorium. This will ease out your worry for the loan repayment for the next 3 months and can pay the EMI later.

Each bank follows a different process. Few of the banks processes are below.

If you need any advice on investments, do call us at 044-48612114/9940116967/9600048801.

Team Wealth Ladder


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