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How Much Will It Cost You on Delaying Your EMI Using the 3-month Moratorium Period?

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Highlights

  • Is it good to choose moratorium on loans and credit cards?
  • Maybe not, in terms of cost - read this to know the same!

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!

EMI Moratorium Calculator

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 AspectsDetails
Loan TakenINR 5,00,000
Interest Rate15%
Tenure48 Months
Interest PayableINR 1,67,945
EMI paid for Jan & FebINR 13,915
Outstanding Principal Left NowINR 4,84,574
Interest Paid So FarINR 12,404
Interest to be Accrued During the Moratorium PeriodINR 17,876
New Outstanding BalanceINR 5,02,450 (4,84,574 + 17,876)
EMI Payable Over the Remaining 45 MonthsINR 14,667
Interest Payable Over the Remaining 45 MonthsINR 1,57,546
Interest Paid So Far + Interest Payable Post MoratoriumINR 1,69,950
Extra Interest Payable on MoratoriumINR 2,005 (1,69,950-1,67,945)
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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 AspectsDetails
Loan TakenINR 50,00,000
Interest Rate9%
Tenure240 Months
Interest PayableINR 54,13,923
EMI paid for Jan & FebINR 43,391
Outstanding Principal Left NowINR 49,83,995
Interest Paid So FarINR 70,770
Interest to be Accrued During the Moratorium PeriodINR 1,05,737
New Outstanding BalanceINR 50,89,732 (49,83,995 + 1,05,737)
EMI Payable Over the Remaining 237 MonthsINR 44,384
Interest Payable Over the Remaining 237 MonthsINR 54,29,116
Interest Paid So Far + Interest Payable Post MoratoriumINR 54,99,886
Extra Interest Payable on MoratoriumINR 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 AspectsDetails
Loan TakenINR 8,00,000
Interest Rate10%
Tenure60 Months
Interest PayableINR 2,19,851
EMI paid for Jan & FebINR 16,998
Outstanding Principal Left NowINR 7,79,252
Interest Paid So FarINR 13,248
Interest to be Accrued During the Moratorium PeriodINR 19,218
New Outstanding BalanceINR 7,98,470 (7,79,252 + 19,218)
EMI Payable Over the Remaining 57 MonthsINR 17,655
Interest Payable Over the Remaining 57 MonthsINR 2,07,853
Interest Paid So Far + Interest Payable Post MoratoriumINR 2,21,101
Extra Interest Payable on MoratoriumINR 1,250 ( 2,21,101 - 2,19,851)
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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.

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Personal Loan Interest Rates May 2020
Fullerton India14.00% - 33.00%
HDFC Bank10.75% - 21.45%
ICICI Bank10.99% - 18.49%
IndusInd Bank10.99% - 16.00%
Kotak Bank10.99% - 20.99%
RBL17.50% - 24.00%
Standard Chartered Bank11.50% - 18.00%
Tata Capital10.99% - 18.00%

Home Loan Interest Rates May 2020
Axis Bank8.10% - 8.85%
Bank of Baroda7.25% - 8.25%
Citibank8.20%
HDFC7.75% - 8.65%
ICICI Bank7.70% - 8.80%
Indiabulls Housing Finance Limited8.80% - 11.05%
Kotak Bank8.20% - 9.25%
LIC Housing7.40% - 8.85%
Piramal Capital & Housing Finance9.00% - 9.10%
PNB Housing Finance8.95% - 9.20%
Reliance Home Finance8.75% - 14.00%
State Bank of India/SBI7.35% - 8.00%
Tata Capital9.20% - 9.35%