Coronavirus: What does moratorium mean for your EMIs

There is a three-month moratorium on loans announced by the Reserve Bank of India this moratorium is on all term loans and credit card dues on installments due between March 1, 2020 and May 31, 2020.

Several banks have reached out to their customers offering them the option to opt for the moratorium, while others have communicated that the loans will be automatically moved to the moratorium unless the customer specifies otherwise. However even as you consider postponement of payment of your loan installments, there is an important caveat, “interest shall continue to accrue on the outstanding portion of the term loans.”

This is not a waiver of interest but a deferment of payment. So even as you decide to opt for the moratorium, interest will continue to accrue on the principal outstanding for the moratorium period and the loan tenure will be extended by the corresponding period.

For instance, on a loan amount of eight lakh rupees, the remaining tenor of 36 months, last EMI on 7th Feb 23 on availing the moratorium the tenor would increase by four months; the additional interest would be about Rs 25,500 and the last EMI including the interest recovery would be on 7th June 2023. So essentially you end up paying one extra EMI on your loan of Rs8 lakh.

The package is beneficial if there is a disruption in your cash flow or if there is a loss of income. But while the interest is not immediately payable and gets postponed, you get charged for it and you pay a higher cost.

But it could help businesses with disrupted cash flows with a breather as several small and medium-size businesses ask for relief from the government to be able to pay salaries. However, if your salary flow is not disrupted, taking the moratorium might not be a good idea.

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