RBI EMI moratorium: Who is eligible for EMI moratorium? How is interest calculated on loan moratorium?

RBI directed banks across the country to defer loan EMIs until 31 August 2020. What does this mean to you as a borrower?

RBI extends EMI moratorium till Aug 31: What you need to know as a borrower?

The coronavirus crisis and the ensuing lockdown have severely impacted the economy. With businesses shuttered, millions of office-goers and self-employed people have had to stay indoors, disrupting the demand-supply cycle. The inevitable layoffs and pay cuts that followed only put a large number of households in a precarious financial position.  

As part of a series of relief measures announced in March 2020, the RBI directed banks across the country to defer loan EMIs due between March 2020 and May 2020 for a period of three months. The moratorium period was meant to provide temporary relief to borrowers struggling to make ends meet. Lately, this EMI holiday was extended for another three months, until 31 August 2020. The apex bank clarified that the deferment of EMIs would in no way change the terms and conditions of the loans themselves. However, borrowers’ credit standing would not be impacted as a result of non-payment within the 6-month window. 

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Here’s everything you need to know about the RBI loan moratorium and how you can make good use of it:

  • Who is eligible for moratorium?

If you have an outstanding loan as on 1 March 2020, you are eligible for the EMI moratorium. The RBI guidelines apply to all kinds of loans in India, including personal loans, home loans, education loans, motor loans, and business working capital loans, in addition to credit card dues. Banks, NBFCs, and cooperative credit societies have all been allowed to provide the benefit to their customers on condition that they opt-in for it. In other words, borrowers will need to contact their respective lenders to request the EMI freeze. Businesses are also eligible for it.

  • How is interest calculated if opted for loan moratorium?  

As attractive as the idea may sound, the moratorium period unfortunately does not waive the interest payable, which will continue to be applied to the outstanding balance by your bank. In fact, the interest accrued during the 6-month period may be adjusted proportionately in the forthcoming EMIs or you may have to make up by paying a lump sum. Alternatively, the loan tenure could be extended at the discretion of the lender. If you are concerned about how much more you could end up paying, a loan calculator can help you determine the overall impact on your repayment schedule.

For example, if you pay 8.5% interest on a Home Loan of Rs. 50 lakhs for 20 years, the basic EMI would be around Rs. 43,391. Assuming a remaining tenure of 15 years, the additional interest adds up to Rs. 94,300. If the accrued interest is added to your EMIs at the end of the six-month moratorium, the new EMI amount payable rises to Rs. 44,320. On the other hand, extending the tenure can add an extra 8 months to your repayment schedule.             

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  • Does moratorium affect credit score?

Typically, defaulting on an EMI payment has negative consequences for the borrower’s creditworthiness. Loans with low apr can be assessed higher interest if a payment is missed. A credit downgrade can mean the individual will not be looked upon favourably by lenders in case they apply for a loan in the future. However, the RBI has assured borrowers that non-payment while the moratorium is in effect will not affect their credit scores. Credit bureaus like CIBIL have been instructed to tweak their reporting processes accordingly.

  • Is opting for EMI moratorium mandatory?

The RBI guidelines for EMI deferment do not make it mandatory for all borrowers to put their EMIs on hold. It is left to your discretion whether or not to continue making payments while the moratorium is in effect. However, to avoid an increase in the interest burden and/or a corresponding rise in loan tenure, making payments on time is clearly the better option for those who can afford it. In case you wish to defer your EMIs, contact your lender and place a request. Depending on company policy, your bank or NBFC may require you to give fresh consent for each month of the moratorium or put in a one-time request. It is important to remember that the RBI guidelines for delaying EMIs are not binding on lenders, so get in touch with your loan provider to understand their approach. 

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Last words

In the ongoing pandemic conditions, putting off EMIs may seem like the best thing to do. However, to make an objective decision, consider the higher payments that will inevitably come your way in future. Depending on the tenure that’s remaining, a typical home loan could cost considerably more to pay off as there will be no waiver of interest once the moratorium ends. In fact, the unpaid interest could be added across the board to all your future EMIs. If you opt to extend the tenure instead, do bear in mind that your goal of becoming debt-free may take longer to achieve. Read to understand how to calculate your loan EMI easily


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