EMI moratorium is a grace period offered by lenders to defer payments of monthly installments for loans. It means borrowers don’t have to pay their loan EMIs for a fixed period offered as a moratorium.
The moratorium period announcement was part of the relief package that the Government of India offered to help customers tackle the recent financial crisis.
What is the current moratorium period for EMIs?
The Reserve Bank of India initially announced a moratorium of three months from 1st March to 31st May 2020. This has been further extended for three months until 31st August.
How to opt EMI moratorium?
The process to opt for this moratorium period usually depends on a financial institution. Borrowers can avail it by visiting the lender’s official website, accessing the link sent via email/SMS, or calling the customer care.
Few points to know about this moratorium period
Borrowers should consider a few points before choosing the option –
1. EMIs are not waived off
Customers should note that the due EMIs are not waived off but deferred. They will have to pay the outstanding after this grace period ends.
2. Interest will accrue on the deferred payments
Interest will continue to accrue on the outstanding loan balance even though the monthly installments are deferred.
For example –
Say a borrower has a personal loan of Rs.7 lakh at an interest rate of 12% for 5 years. EMI on this loan is Rs.15,571 and the cost of loan (principal + interest) is Rs.9,34,267.
Now, let’s assume that the borrower has paid 5 monthly instalments and opts for the EMI moratorium period of 3 months. The interest accrued during these months will amount to Rs.19,400 (approximately).
Hence, it may not be ideal for those to opt for this moratorium period who have the capacity to repay their loans.
But if you are burdened by other financial obligations, then opting for a moratorium can be a right choice for you. This accumulated interest can be paid over the subsequent months after this moratorium period in multiple ways mentioned below.
3. Interest accrued can be paid in 3 ways
Financial institutions have offered 3 ways in which borrowers can pay the accumulated interest by –
- Increasing the EMIs – Increased EMIs means you are paying more each month than previously, thus reducing your interest liability early.
- Increasing the loan tenor – An increase in loan tenor allows to segment the existing liability in a greater number of months, thus reducing the EMI payable.
- Making a lump sum payment – It can be done through two popular options, i.e., part-prepayment and foreclosure.
4. Moratorium is available on all types of credits
The moratorium period is applicable to all types of credits, including personal loans, housing loans, vehicle loans, education loans, working capital loans, credit card outstanding, etc.
5. Credit score will not be affected
Opting for the EMI moratorium will not lead to a negative impact on a borrower’s (individuals or corporate) credit score.
Will you benefit from this moratorium period?
The primary drawback of this moratorium period is the interest accrual. Paying it in any of the ways mentioned above may not be a burden for borrowers with a small personal loan amount. It can be one of the ideal ways to manage debt during this financial crisis.
Contrarily, those with a high-value secured loan may have to pay a substantial amount after the moratorium ends, which can increase the tenor by up to 10 months or even more.
However, that solely depends on the remaining tenor. Borrowers who have already repaid the majority portion of their loan will not accrue a significant interest on their outstanding balance.
Borrowers can use an personal loan EMI calculator to find whether opting for the EMI moratorium will be beneficial. They have to enter their loan details and check the amortisation schedule to assess this grace period’s impact.
Those looking to apply for personal loans during this financial crisis can avail these from NBFCs. Companies like Bajaj Finserv even bring pre-approved offers that make availing credits easy by reducing the hassles involved during application. These offers are available on personal loans, credit cards, business loans, etc. Individuals only need to provide their name and phone number to check their pre-approved offer.