The economy took a hit as coronavirus started spreading. The lockdown has impacted people and businesses in such a way that they are unable to repay their loans. To address this issue, the RBI allowed the banks and NBFCs to offer borrowers an EMI moratorium.
This essentially means that you can defer the EMIs for a specific period. The RBI made the first moratorium announcement in March, allowing a 3-month moratorium, which would end on 31 May. Recently, the RBI announced that the moratorium is extended for another 3 months. This means that you can defer your EMIs until 31 August. The moratorium is applicable on all term loans, such as personal loans, home loans, auto loans, and credit card dues too.
Small businesses have been finding it quite hard to weather the effects of the pandemic. Some had to shut shop while others had to lay off their staf
They can certainly opt for a moratorium if they took a business loan. This is how small businesses can sustain during the crisis. By extending the EMI payments for another 3 months, they can find solutions to keep the business running.
Should You Opt for EMI Moratorium?
If you don’t have a large cash reserve or if your income has completely stopped, go for the option of EMI moratorium. When the situation starts normalizing, and you start getting your salary, or your business cash flow improves, you can start paying the EMIs.
Just because you have the option of a moratorium doesn’t mean you have to use it. Remember, your EMIs accrue interest while they are in deferment. Therefore, if you have a steady income during the pandemic and the capacity to pay your EMIs, don’t opt for a moratorium, pay them off.
How EMI Moratorium Works?
EMI moratorium allows you to defer your loan EMIs for a couple of months.
Remember, the moratorium is not a loan waiver. During this period, your credit score won’t take a hit, nor will get you blacklisted, but you will continue to accrue interest on the outstanding principal. This will eventually increase the cost of borrowing.
Every EMI you decide to defer will cause the outstanding principal to increase. While the rate of interest will remain the same, the loan tenure will increase to balance the EMIs. You can also choose the option of paying off the accumulated interest for 3 months in September. If you want to keep the tenure the same, the EMI amount for the remaining tenure will increase.
When to Use This Option?
The moratorium is a blessing for those facing a financial crunch or the need for urgent liquidity. Go for it if you have lost your job, or your business’s cash flow has been disrupted severely.
In Conclusion
If you continue to pay your EMIs instead of going for the moratorium, you will avoid inflated loan repayment and reduce the burden on the financial system. If you are on the fence, start with deferring the payment of EMI for one month. When things get back to normal, start paying EMIs as per schedule.
