How Much Will It Cost You on Delaying Your EMI Using the 3-month Moratorium Period?
Last Updated : April 3, 2020, 8:29 p.m.
The Reserve Bank of India (RBI) while announcing the monetary policy on March 27, 2020, gave much-needed relief to customers by providing them a 3-month moratorium period on all their retail loans. The moratorium, which was ending on May 31, 2020, has been extended till August 31, 2020 . While this serves good news for all those having difficulties to pay their loan EMIs, it may not hold good for people who are earning as usual and can pay their Equated Monthly Installments (EMIs) on time. After all, it’s not an EMI waiver, rather a deferment of the installments. The RBI guidelines clearly suggest that the interest will accrue on the outstanding balance. So how will your loan or credit card repayment pan out if you choose the moratorium option? We have chosen the moment to detail you on the same, so read on!
Calculations Indicate a Slightly Higher Cost When Choosing Moratorium on Personal Loans
Assume you have been paying EMIs on a 4-year personal loan of INR 5 lakh from Jan 2020 at an interest rate of 15% per annum. So if you avail of a moratorium period, how will it impact your personal loan repayment?
| Loan Aspects | Details |
|---|---|
| Loan Taken | INR 5,00,000 |
| Interest Rate | 15% |
| Tenure | 48 Months |
| Interest Payable | INR 1,67,945 |
| EMI paid for Jan & Feb | INR 13,915 |
| Outstanding Principal Left Now | INR 4,84,574 |
| Interest Paid So Far | INR 12,404 |
| Interest to be Accrued During the Moratorium Period | INR 17,876 |
| New Outstanding Balance | INR 5,02,450 (4,84,574 + 17,876) |
| EMI Payable Over the Remaining 45 Months | INR 14,667 |
| Interest Payable Over the Remaining 45 Months | INR 1,57,546 |
| Interest Paid So Far + Interest Payable Post Moratorium | INR 1,69,950 |
| Extra Interest Payable on Moratorium | INR 2,005 (1,69,950-1,67,945) |
Choosing Moratorium Can Greatly Increase Your Outgo on Home Loans
Assume you are servicing a 20-year home loan of say INR 50 lakh at 8.50% interest rate from January 2020. On choosing the EMI moratorium option, your home loan repayment will most likely follow the table shown below.
| Loan Aspects | Details |
|---|---|
| Loan Taken | INR 50,00,000 |
| Interest Rate | 9% |
| Tenure | 240 Months |
| Interest Payable | INR 54,13,923 |
| EMI paid for Jan & Feb | INR 43,391 |
| Outstanding Principal Left Now | INR 49,83,995 |
| Interest Paid So Far | INR 70,770 |
| Interest to be Accrued During the Moratorium Period | INR 1,05,737 |
| New Outstanding Balance | INR 50,89,732 (49,83,995 + 1,05,737) |
| EMI Payable Over the Remaining 237 Months | INR 44,384 |
| Interest Payable Over the Remaining 237 Months | INR 54,29,116 |
| Interest Paid So Far + Interest Payable Post Moratorium | INR 54,99,886 |
| Extra Interest Payable on Moratorium | INR 85,963 (54,99,886 - 54,13,923) |
Moratorium on Car Loans Could Increase Your Extra Payments by a Touch!
Assume you are paying EMIs applicable to a 5-year car loan of 8 lakh at an interest rate of 10% per annum from Jan 2020. If you stop paying EMIs for 3 months from March 31, 2020, to May 31, 2020, how will your repayment change? Check out the change in the table below.
| Loan Aspects | Details |
|---|---|
| Loan Taken | INR 8,00,000 |
| Interest Rate | 10% |
| Tenure | 60 Months |
| Interest Payable | INR 2,19,851 |
| EMI paid for Jan & Feb | INR 16,998 |
| Outstanding Principal Left Now | INR 7,79,252 |
| Interest Paid So Far | INR 13,248 |
| Interest to be Accrued During the Moratorium Period | INR 19,218 |
| New Outstanding Balance | INR 7,98,470 (7,79,252 + 19,218) |
| EMI Payable Over the Remaining 57 Months | INR 17,655 |
| Interest Payable Over the Remaining 57 Months | INR 2,07,853 |
| Interest Paid So Far + Interest Payable Post Moratorium | INR 2,21,101 |
| Extra Interest Payable on Moratorium | INR 1,250 ( 2,21,101 - 2,19,851) |
Note: Calculations are purely Indicative
Moratorium on Credit Cards – Just Not the Right Option for You!
It is just not okay to pay interest on a credit card . The reason being the outstanding balance piles on at an astonishing interest rate of 30%-40% per annum. So, if you were paying your card dues in full, you must not have paid any interest on it. Otherwise, you’d have been paying a lot of interest. Choosing the moratorium option will only increase the burden further. In case you have converted your credit card transactions into EMIs, the interest rate will be much like that of a personal loan. The eventual cost on moratorium will depend on the transaction amount; higher amounts will increase your interest burden more.
Conclusion
You could see the extra money payable on choosing the moratorium option on loans and credit cards. If your income is not affected by the lockdown, there’s no point in paying extra. Discard the option right away. In case you are severely affected by the lockdown, you can exercise the moratorium option. But keep in mind to reduce the loan tenure as and when the lender allows you to do so. You could even think of a balance transfer to another lender at lower rates to cut down on your outgo on loans & credit cards.