EMI moratorium doesn't come free, warn experts

Last week, the Reserve Bank of India (RBI) permitted lenders to provide a three-month deferment on payments of equated monthly installments (EMI) for all term loan installments falling between March 1, and May 31. Individuals having a home loan, car loan, personal loan, credit card dues, education loan besides farm loan can avail of this benefit. The moratorium in no way will hamper the terms of your loan contract or impact your credit score.

However, this is a temporary deferral and is not free of cost, as the interest amount shall continue to accrue on the outstanding portion of the term loans even during the moratorium period and you will be expected to pay your outstanding amounts and the interest charges on the due date after May 31 to avoid late fees and impact on credit score. Your dues will balloon at the end of the moratorium period in the case of credit card spends. On credit card dues the interest charges range from 24 to 48 per cent at compounding annual interest rate. The finer details on who can avail the moratorium benefit, how it will apply will be known only after banks come out with their board approved policy, but financial experts and bankers advice against using the moratorium.

Says Vipul Patel, MD and founder of Mortgageworld. in, a loan advisory firm, "It is recommended to pay EMIs regularly without availing the moratorium if your cash flows permit. In the event you avail the moratorium it should be clearly understood that the loan tenor will get extended by default and the interest holiday period will accrue and get added to the outstanding loan amount. This is a moratorium offer and not EMI waiver."

For instance, if you have a loan outstanding of Rs 90 lakh booked at 9 per cent interest between January and March 2019, the balance loan tenure is 360 months and your EMI will work out to Rs 72,416. The interest payable during the loan tenor is Rs 1.70 crore. If your bank cuts the lending rate, the revised rate would be 7.25 per cent and your balance loan tenure would be 228 months and interest outflow is cut to Rs 83.32 lakh without using the three months moratorium offer. If you use the moratorium, the interest payable is Rs 89.93 lakh. So, not using the moratorium will mean a net savings of Rs 6.60 lakh, said Patel.

Kunal Shah, founder of Cred and FreeCharge, said, “For term loans, all EMIs will be shifted by three months i.e. March EMIs will be due in June, and May EMIs in August. For credit card dues, billing will be restored on May 31.”