The Reserve Bank of India recently announced an extension on loan moratorium for another 3 months in May this year. Individuals and companies with outstanding loans as on March 31, 2020 were offered the option to avail a further respite from June 1 till August 31, 2020 for repayment of their loan amount. They could also choose to convert the total interest to be paid into a funded interest term loan payable by 31 March 2021. The government took the decision to extend the relief to borrowers who were under financial duress due to the current pandemic and the resulting.
A survey revealed that one out of every 3 people who opted for the moratorium did so to conserve the cash flow in such uncertain times. The extended relief was estimated to be availed by up to 80% of those who opted for it for the first 3 months from March to May 2020. Salaried professionals have been facing Job losses and salary cuts since the announcement of the countrywide lockdown. This particularly applies to those working in sectors such as hospitality, transport, media and communications and aviation among others.
It turns out that each borrower would be impacted in a different way depending on when the loan was taken and how much amount needs to be repaid. If you too have taken an extension on your personal loan repayment, have you given a thought on how it would affect your EMIs in the near future? It is important to assess whether or not you would really benefit from taking a loan moratorium. Remember it does not offer any concession in interest rates, or any other monetary relief. Let us see in detail how it impacts your future EMIs.
Let us assume you have taken a personal loan worth Rs. 20 Lakhs in the last year with a long tenure of 15 years and decide to defer EMI payment from June to August. The unpaid interest amount as revealed by the personal loan EMI calculator that accumulates over these months will only increase the number of EMIs to be paid. This will add up to the cost of paying the loan for the same tenure in the long run, making it more expensive. It is advisable that if you have either a high cost loan such as the one above or one with a longer duration, you should pay the EMIs, rather than postpone them to save money.
If you are in the initial stage of repaying your loan, say the first, second or third year, skipping an EMI will have a repercussion on the additional interest which is added to the loan. This is because during the early years, interest is a huge component of loan repayment which you can easily find out with the personal loan EMI calculator available online. Over time, missed payments only become a financial burden as the corresponding loan tenure increases and you end up paying more interest for a longer duration.
Your payable interest will become high if you have taken a personal loan at a high rate of interest earlier and decide to skip the EMIs by availing the moratorium. The added interest increases your financial liability in the future. Hence, it might not be prudent to stop EMI payment for the next 3 months.
The bottomline is that you should exercise the choice to sign up for the moratorium only if you are facing a cash crunch. Assess your financial situation and cut down on unnecessary expenses. Direct this liquidity towards paying your EMIs. In the event that you choose to postpone paying your EMI, make sure that you have duly calculated the cost of interest in the long run using a personal loan EMI calculator.
If you have been repaying your loan for a longer period and are nearing completion of your tenure, opting for the moratorium will not have much impact on your prospective EMIs.You can also choose to either pay the interest accrued over 3 months in one go or ask your personal loan provider to hike your monthly EMI. Use the personal loan calculator to compute the interest outgo for both these options as well as when you extend the loan tenure by opting for the moratorium. Let the one with the least interest payout be your first preference.