Should You Extend Your Loan Moratorium? Know here…

The COVID-19 pandemic has not only dented the Indian economy but has also caused disruption of cash flows and income loss for millions of people. So, thus, this extension of loan EMI moratorium by another 60 days, announced on 22nd May by Shaktikanta Das, the RBI Governor, is a welcome move for borrowers struggling with liquidity issues.

Many lenders have started implementing this moratorium facility and to avail this facility most institutions are requesting their customers to visit their website to apply for it.

If you are considering to avail the loan moratorium as well, read further to first thoroughly understand moratorium. details

Loan type

As per the announcement by the RBI, the lenders can provide an extension on repayment of term loan EMIs falling between 1st March 2020 till 31st August 2020, can be paid after 31st Aug 2020. This moratorium applies to all the different types of term loans, including home loans, personal loans, education loans, auto loans, and even credit card dues.

However, if a borrower decides to avail of this facility, his/her credit score will not be affected in any way if not paid.

Deferment of Payment of Principal and Interest Components allowed

The borrower has an option to defer to pay the principal and interest component of any retail loan upto August 31st, 2020. If you avail of the moratorium option, your loan tenure will be adjusted accordingly.

For example, assuming that you are currently repaying a car loan, whose term ends on 1st August 2022. If you avail of this loan extension, your new loan maturity date will now be 1st November 2022.

Interest is accrued

As mentioned earlier, a borrower can defer the payment, but remember interest will continue to accrue on your loan balance during this moratorium time. In other words, this is only a temporary fix to help borrowers get over the current financial crunch caused due to the pandemic. It is not a waiver of any kind and should not be treated as such.

If you have taken a home loan of Rs 23 lakhs for 25 years and paying an EMI of Rs 17,752 at an assumed rate of 8%, then after August you will have to pay Rs 1,06,511 including the accrued interest. There is no waiver of loan repayment as you will have two options-to pay the same EMI with an increase in tenure or pay an increased EMI over the same tenure

Should you extend the Loan Moratorium?

COVID-19 pandemic has resulted in a reduction of the income of many individuals. So to extend or not the loan moratorium, entirely depends on your current finances. If you too are affected due to the COVID-and are struggling with your finances, you have no option but to avail of this facility.

[Read: How to Stay Financially Fit In the COVID-19 Lockdown]

However, if you can continue paying the EMIs, regularly then it's better to skip this moratorium facility. As the interest will continue to accrue during this period will get added to your principal availing the facility will either increase your EMI burden or enhance loan servicing tenor.

So, the decision depends on you and your current finances. You can get in touch with your lender to know more about the moratorium facility and get exact details of how availing and not availing it will impact your loan repayment.

[Read:  Make Mindful Choices of Mutual Fund investments in Current times]

Warm Regards,
Aditi Murkute
Senior Writer

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