Does opting for Moratorium as COVID Loan Relief help customers?

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To help individuals out of the Corona crisis, Reserve Bank of India has extended their loan moratorium to three more months against the initial tenure of 3 months. The moratorium has been opted for by many people all though they can pay their EMIs. Opting for a moratorium would not harm their credit score. The moratorium is not an EMI waiver but only postponing it. Interest will go on to accumulate for 6 months and the tenure will get extended.

Incurring Interest

If an individual takes a home loan of Rs.30 lakh for 20 years the interest is 9% and EMI comes to 26,650 per month. If a moratorium is opted, the individual will be saving Rs.26,650*6 = 1,59,900. That is a big amount and many would-be driven for it. If you have been paying EMIs for 4 years and for the remaining tenure of 192 months plus 6 months (moratorium) total amount to be paid would be Rs.40.50 lakh. This includes Rs.30 lakh principal and Rs. 8.7 lakh interest. But there is an EMI loan calculator which will help you know the EMI calculation works. After each month EMI is paid, the amount is deducted from the loan outstanding. But when we opt for the moratorium, we don’t pay EMI and interest continues to accrue on the outstanding principal.

Pay EMI if there is cashflow

It is not to say that moratorium is unpleasant for those people who have faced cash flow problems due to lockdown and cannot pay their EMIs. For them, this moratorium helps even if it incurs an increase in interest. So, if you can pay EMIs without too much problem, it is better not to opt for a moratorium. 

If you prefer a moratorium, the person availing the loan should ask his lender to hold the same tenure after moratorium as that will increase your EMIs. By doing so, one can hold the interest cost element down. Once the moratorium is lifted, if the situation permits and has necessary funds available, pre-pay three or six pending EMIs at one go.

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