RBI Home, Personal Loan EMI Moratorium: When should you avoid it and when to avail?

Home, Personal Loan EMI Moratorium: With the hardship continuing due to the ongoing lockdown to contain the spread of highly contagious Novel Coronavirus COVID-19, the Reserve Bank of India (RBI) has extended the moratorium of term loans by a further three months till August 31, 2020 to ease financial stress. Moreover, in order to ease the difficulties faced by borrowers, the RBI has asked all lenders to convert the accumulated interest of six months on working capital loans into a Funded Interest Term Loan, which is to be fully repaid by March 2021. This comes as a big relief to the borrowers, who otherwise would have been required to make balloon payment, thus, causing financial distress.

As on April 30, 2020, many large banks indicated that the proportion of customers availing the moratorium has been in the range of 25-35 per cent (in value terms), while for small finance banks, the moratorium has been much higher. For instance, the moratorium for Equitas Bank stood at 93 per cent, Ujjivan Bank at 90 per cent and for Bandhan Bank it was around 70-75 per cent of the total portfolio.

Although many people are availing the moratorium in loan repayment through equated monthly installment (EMI), is it a wise decision to avail it or should you avoid it due to accumulation of interest during the moratorium period?

“The implementation this time around will be more informed and balanced, both from the lender’s and borrower’s perspective. There will be less confusion than the last time. Consumers understand that there is additional interest to be paid if they opt-in for the moratorium. So if they can afford to pay the ongoing EMIs, then they should pay those and avoid the moratorium,” said Kunal Varma, CBO and Co-founder MoneyTap.

“For those who are genuinely unable to pay EMIs due to severe economic hardships, the moratorium is the right choice for now. With lockdown relaxations in place, hopefully, they will be able to gradually get back on their feet and get back to repaying their loans regularly,” he added.

So, in case of genuine hardship in paying EMIs due to loss of income, you may avail the moratorium, but better try to avoid it, especially in case of high interest loans.

Strongly recommending that individuals should not apply for the Credit Card moratorium if possible, Pranjal Kamra, CEO, Finology said, “the deferment has a high cost. You’ll get 3 months extra to pay off, but the interest burden will be quite high as compared to other types of loans (such as a house loan or a vehicle loan). An average extra interest burden that you would have to bear would be somewhere between 25 to 30 per cent!”

So, Kamra suggests that you may apply for moratorium on other loans, but recommends you to try paying off the credit card bills.