EMI Moratorium: Good or Bad? Experts explain how it impacts your loan

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As the new financial year has begun, so many public sector banks including some private banks announced tweeting that they will offer the service of 3 months moratorium to their existing customers and they can avail the service according to their needs due to Pandemic, COVID 19 impact on finances of people. People were worried even after the announcement by RBI to give 3 months loan moratorium because they were getting SMSs and mail alerts from their banks to pay the EMI before the due date. So, to give transparency to their existing customers Banks, NBFCs and financial firms have started to tweet the message and give information about the 3 months loan moratorium by writing that -In terms of COVID-19-RBI package, borrowers are eligible for moratorium/ deferment of installments/EMI for Term loans falling due from 01.03.2020 to 31.05.2020 & repayment period gets extended accordingly. SMS also has been sent to customers to avail the same.

"The RBI announced loan moratorium primarily to provide relief to those whose loan repayment capacity has been severely impacted because of disruptions caused by the lockdown. However, those availing the moratorium will continue to accrue interest on the outstanding amount of their term loans during this period. As the interest accrual will increase their total interest cost, existing borrowers capable of servicing their term loans should continue with their original repayment schedule. This will save them from incurring higher interest costs on their loans. Only borrowers unable to service their terms loans because of restrained cash flows should opt for the loan moratorium.” Says Naveen Kukreja - CEO& Co-founder, Paisabazaar.com -

Banks like SBI, PNB, BOB, IDBI, Canara Bank, UCO bank, Syndicate Bank, Punjab & Sind Bank, Andhra Bank, Central Bank of India, HDFC Bank, ICICI bank…and many more tweeted about the details that the customer can follow by mentioning the in and out option. Some gave an email id as well where they have asked their customers to email the details of their installment/Loan account to the bank if they want to go for 3 months moratorium. But many financial experts still say that this 3 months period is just like a grace period with many ifs and buts...Let us follow the low down and know more about the upcoming EMI moratorium.

Key points to note for all customers:

•    The first and foremost thing to keep in mind is that it is not a Loan WAIVER. It is just a moratorium, which means a pause, a stay to your existing EMI payments for only 3 months.

“The loan moratorium is a help for cash flow only, not a reduction in payable amounts. Hence, only those who have liquidity issues (lost a job, cut in salary, etc) should avail the loan moratorium; as they continue to pay interest on the loan outstanding -- and the tenure will be extended by the 3 month period too.” said Lovaii Navlakhi,Founder & CEO, International Money.

•    One has to pay the EMI after 3 months (If one goes for the moratorium option). This is available for all retail and agriculture/crop loans and Term loans

•    It is very important to keep in mind that if you ignore to pay EMI for the next 3 months without any liquidity crunch, then these three months interest will get add on to further 3 months of your total EMI period with more interest        .
•    For example, if one has to pay the EMI for suppose 2 or more year. And he or she opts for the 3 month EMI moratorium. Then remember that present 3 months interest will get added to the 2 year EMI period plus these 3 months which you opted as a moratorium.
Suresh Sadagopan, Founder, Ladder7 Financial says: “If they have a regular income which is not expected to be interrupted or if they have liquidity enough to pay the EMIs irrespective of disruptions, they may continue with the loan repayments as before. Only those who are expected to be adversely affected in terms of cash flows need to opt for moratorium”.

•    One will have to pay more interest as compare to the current interest of rate. This will be applied on all term loans and even credit card EMIs.
•    RBI has put the notification to give this benefit to their customers, but now it is totally on banks that how they surpass the benefit to their EMI customers. Some banks have started giving the benefit if customers wanted to.
•    As it is not a waiver, so don’t forget that you will have to pay the loan EMI when things will get normal
Banks like SBI has decided to give a blanket moratorium and is extended for all EMI customers. So in that case “Customer has no choice? Keep the funds aside in a liquid fund so that after this period one can prepay.” Says Navlakhi
•    So, if you are capable to pay the EMI amount for the next 3 months, then it is suggested by the experts that not to avoid the payment

Let’s understand via chart that how it is going to impact your loan (3 months EMI moratorium):  

•    The only best part of this moratorium is that one will not be come under defaulter and CIBIL will  not get effected
•    Only loan closure date/period will extend which is useless
•    To avoid cash/liquidity crunch this is the best option for 3 months. But if you have enough cash for next 3 months then don’t avoid the EMI payment or installments to pay on time
•    This will just increase the burden for extra 3 months of EMI installments on you
•    Again it is not a Loan waiver...So, think about your financial status then opt for the moratorium period provided by all the banks due to COVID 19 impact
•    To avail the service of moratorium many private banks have also asked their customers  to get in touch with their banks or send an email regarding the request of loan EMI moratorium/visit the website of their particular bank and click on the moratorium option
•    One can even email on the particular ID of banks mentioning their loan account type details and all required information
•    Many banks will offer opt in and opt out option but in some cases one has to get in touch with the bank officials as soon as possible
•    As new financial month  has started so in a day or so rest of the banks will start sending the messages to their customers to opt in and out about the moratorium option
•    For some banks it will be automatic but some will send SMS to opt in and out the moratorium option
•    Some banks will reset the EMI amount after all your installments and then ask you topay for the pending 3 months. It depends how banks will take the act upon

For Credit Card customers Kukreja says-“While credit card dues are also eligible for moratorium, it should be avoided to the extent possible. The interest cost, popularly known as finance charges, of credit card dues can range anywhere between 23-48% p.a., which is way higher than the usual loans. Instead, credit card holders unable to repay their dues should convert their bill amount to EMIs to repay back in smaller installments. The interest rates of EMI conversions are much lower than the finance charges and the tenure usually ranges between 1-5 years."

•    Many banks are yet to clarify about the refund amount of March and rest financial services. Do check their websites time to time for updates
•    If you have paid the EMI for the month of March then you can have 2 months EMI moratorium benefit only. That depends on you whether you want to avail or not
•    Don’t get confused; check details about the interest amount with your bank. Talk to your financial planner, bank official or expert before taking any decision on 3 months EMI moratorium facility.