3 Month EMI Moratorium: Should you take it?

The government in India has understood the severity of the situation brought about by the Coronavirus pandemic. Steps are being taken at all fronts to ensure that this pandemic is contained in India and does not spread much far. Among the most popular steps by the government is the 21 day lockdown in the country, announcing a three month moratorium for EMIs and a relief package for the poor through which money will be transferred directly into the bank accounts of people.

While there isn’t much choice for people regarding the lockdown, the EMI moratorium option announced by the government is attracting a lot of attention. People are confused on whether it will be optional or mandatory and how will it affect their outstanding loans.

So if you are also worried on how it will affect you, there here are certain important things to keep in mind and to decide whether the EMI moratorium if useful for you or not.

1. The moratorium period is from 1st March 2020 to 31st May 2020. This means that for any credit facilities like loans, credit card payments etc. which you have availed before this period will be covered under the moratorium and you can seek a deferment on the payments of the same.

2. The moratorium applies only to the EMI. This means that you will have to pay additional interest to the bank for seeking this three month deferment. This means that while you are not paying your EMIs, you will have to pay additional interest on this amount for three months. So while this amount will be comparatively low for a smaller loan amount, for a house loan, it could imply an increase in payment of principle and interest in lacs, requiring many more EMIs to be paid.

3. It is not automatically applied to all your EMIs. If you feel that you can make your EMI payments, you would not be forced to opt for deferment and you can easily make the necessary payment to the bank.  However, to avail this facility, many banks have devised a short procedure in which you have to submit your consent to avail the facility.

4. Applicability on credit card outstanding dues. While credit card dues due not fall under the category of ‘term loans’, banks are also offering moratorium on credit card dues of their customers and providing them the facility to not pay their dues till 31st March 2020.

5. You can avail moratorium for more than one loans. Yes it is possible for customers to avail moratorium on more than one types of loans. All types of loans for all types of borrowers have been included in the moratorium.

6. No impact on credit score. A major highlight of this announcement is that there would be no impact on the customers’ credit score if they avail this EMI moratorium. Banks and credit rating agencies have been specifically asked to not make any changes in the credit socres of the customer on this account till 31st May 2020.

Following the announcement by RBI governor Shaktikanta Das on EMI moratorium, all banks have been taking their own individual measures to comply with the directions and have reached out to their customers through emails, SMSes and social media to inform them about the options available to them and the steps that customers can take to avail the facility. HDFC Bank has also issued its FAQs to solve queries relating to the EMI moratorium, whereas Axis bank, Bank of Baroda, SBI posted tweets from their official account  informing people about their plans to roll out the moratorium.

While this might have its pros and cons, we, as investment advisors would advise every person to take decision keeping in mind his own financial condition, and as far as is possible avoid deferring the payment of EMIs.

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