Should you opt for RBI’s EMI moratorium & defer loans by 3 months

A FAQ of the EMI moratorium announced by RBI on 27th March 2020. Should you opt for this?

Published: March 27, 2020 at 4:56 pm

RBI has announced a three-month EMI moratorium in view of the nation-wide lock-down. Should you opt for this and defer your loan repayment by three months? A discussion.

What does the RBI moratorium mean? This is a three-month loan deferment. Meaning if your loan ends in 18 months and if you choose to opt for the 3-month deferment, the loan would end in 21 months.

Will I have to pay extra as interest if I choose the moratorium? Yes. The interest will accumulate over the 3-month period and the EMI will resume after three months.  This interest will be recovered immediately after the end of the moratorium period.

What my credit card dues also be eligible? Yes. All EMIs including credit card dues can be deferred.

How should I apply for the moratorium? You will have to apply to the bank. Please expect some delay from the bank’s end to process such applications.

Will EMI deferment affect my credit score? No.

Should I opt for this? If you have the ability to pay the EMIs then you certainly should not. Do you think your cash flow problem will be over in three months and things will be back to normal once again? If yes, go ahead. However, if you can service the EMIs with your existing investments and cash reserves without affecting your lifestyle, it may be simpler, easier to do so.

If you expect extended layoffs, difficulty in resuming your earnings then this three-month delay is only a temporary measure for you to find some other way to take care of your EMIs. If this is the case, then it would be better to sell off some assets and take care of the loan.

It is important to recognise that this EMI holiday is not much of a respite given the present circumstances. Those with a regular income should never opt for it. Only those who expect a temporary disruption in cash flow should choose this. In the case of extended disruption, it may be better to arrange for alternate financing for either the EMI or pre-closure.

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