EMI Moratorium: Should You Opt For It
June 25, 2020
On Mar 27, the Reserve Bank of India (RBI) allowed financial and banking institutions to offer a three-month Equated Monthly Instalment (EMI) moratorium from Mar 01. The announcement was made to ease the lack of liquidity that borrowers are facing due to the nationwide lockdown.
Understanding The Basics Of The Moratorium
EMIs moratorium is only a relief measure, allowing borrowers to postpone loan repayments they would otherwise have to pay. Opting for the moratorium is easy, but the specifics vary across banks. ICICI Bank has divided loans into two categories, wherein some customers get enrolled in the moratorium automatically, while others have to opt for it manually.
The scheme allows you to postpone paying your dues without impacting your credit score. However, during this period, banks will continue charging interest on the outstanding loan amount. When the relief measure ends, the accrued interest will get added to the principal amount, leading to an increase in the overall loan amount as well as the total payable interest.
In simple terms, skipping instalments could increase the EMI amount or lead to an extension of the loan tenure by 6-10 months. Customers planning to opt for the EMI moratorium can benefit from the risk aversion measures listed below.
Watch Out For Your Remaining Loan Tenure
At the beginning of loan tenure, a large portion of your payment goes towards the interest. If you’re still near the start of your monthly payments and are planning to take the moratorium, you need to take stock of the additional dues that will add up. Unless you pay the accrued interest upfront at the end of the moratorium period, it will get added to your outstanding loan.
Avoid Postponement of Payments on High-Interest Loans like Credit Cards
Interest rates are different across loan categories. Unless you’re facing a significant cash crunch, you should avoid postponing payments on high-interest loans.
Furthermore, it may not be wise to avoid paying your Credit Card dues unless you are severely cash strapped. The reason behind it is that the annualised Credit Card interest rate could be very high, and you will also attract a penalty for rolling over the balance. Additionally, all new Credit Card expenses will attract interest, and interest will also be charged on the interest that wasn’t paid in the previous month.
Opting For A Moratorium Should Be Your Last Resort
Considering the high-interest rate that will get added to your outstanding loan amount, it’s essential to weigh your options before opting for a moratorium. Repaying loans is a legal obligation, and the moratorium doesn’t change that.
Ideally, you should try to pay your monthly EMIs without opting for the moratorium. Doing this will help you avoid paying a more substantial sum in the future. If you choose to postpone payments, consider paying the accrued interest as soon as the moratorium period ends.
Whether or not opting for the moratorium is suitable will depend solely on the remaining tenure of your loan and the interest rate. Higher the rate of interest of a loan and remaining tenure, the higher will be the cost of opting for a moratorium. Take the relief measure only as a last resort to avoid financial troubles in the future.
In case you have any questions regarding the moratorium on different types of loan categories of ICICI Bank, you can check out their detailed FAQs.
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