Coronavirus Impact: Should You Pay Your EMIs or Not?

An essential aspect to note here is that moratorium does not imply an EMI waiver. The loan repayment moratorium is a deferment on payment of term loan installments for a few months to provide relief to borrowers. The shift is simply in the loan repayment schedule.The moratorium allows the temporary suspension of both the principal payment and interest for the 3 months starting from the 1st of March, 2020, until the 31st of May, 2020.

The answer is yes, the moratorium on EMI payments does come at a cost. The moratorium is not an EMI holiday period. Therefore, interests will continue to accrue if the borrower opts for the moratorium option.
For the 3-month period, banks shall charge simple interest on the outstanding amount for each month at the same rate as the borrower’s loan. Borrowers shall have to repay the additional interest along with the EMIs accumulated during this period at the end of the moratorium period.

• Banks have been asked to independently frame policies that favor customers. Individual banks can choose to offer the moratorium relief to either all customers a select few who have requested to avail it.
• Since the interest amount is calculated on the outstanding loan figure - the higher the loan amount, the higher the cost associated with the moratorium.
• Industry experts suggest that moratorium should be taken only when absolutely necessary. If a borrower can afford to repay his loan, then the regular loan repayment schedule is definitely cheaper.
• This moratorium is optional. Therefore, term loan repayments are not subject to a mandatory postponement. Moreover, the three-month duration is the maximum stipulated period. Borrowers can choose to skip even one EMI installment and do not have to avail of the entire moratorium duration. However, the more EMI installments you omit, the more interest charges will pile up.

In Conclusion The bottom line is that borrowers should be wise while deciding to opt for the term loan repayment moratorium. It is advisable for those with a regular and stable income to carry on with their original loan repayment schedules.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.