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Covid-19: Should you opt for the EMI moratorium?

  • Highlights

  • Banks, NBFCs are offering EMI moratorium to loan customers

  • Moratorium is a grace period on the repayment of your loan

  • While, this may be a blessing for those facing a cash crunch

  • Choosing this option will affect your finances in the long term

To address liquidity issues that individuals and business owners may face due to the spread of the Coronavirus pandemic and the ensuing lockdown, the RBI has allowed banks and other financial institutions to offer borrowers a grace or moratorium period.

This is for EMIs due between 1 March 2020 and 31 May 2020 and applies to loans like personal loans, home loans, auto-loans, as well as to credit card dues. However, what you should remember is that this grace period is not a repayment holiday. Instead, while you do not get blacklisted and your credit score does not take a hit, you continue to incur interest during the optional moratorium period.

Should you opt for an EMI moratorium? Read on to know more.

How the EMI Moratorium Works

Provided that your lender extends the facility to you, the EMI moratorium allows you to forgo your loan EMIs in March, April, and May 2020. You can continue repayment from June onwards. During the moratorium period, interest accrues on the outstanding principal and this increases the cost of borrowing.

Each EMI you forgo causes the outstanding principal to increase. Then, assuming the rate of interest remains the same, the remaining tenor is increased to keep the balance EMIs the same as they were before the moratorium. You may also have the option to pay off the accumulated interest for the 3 months in June. Alternatively, if you prefer to keep the tenor the same, the EMI amounts for the remaining tenor of your loan will increase.

Note that your revised payments depend on the age of the loan. With older loans, the interest component of each EMI is small and hence, the additional payments may not be much. The opposite is true of newer loans.

Additional Read: Frequently Asked Questions for Moratorium

Even if your lender allows you to increase your EMI amount and keep the tenor the same, the moratorium implies extra debt outgo. According to The Economic Times, if you take a moratorium in April and May, your EMI may increase by 1.5% or your tenor by 6-10 months.

A Blessing for those in Urgent Need of Liquidity

The moratorium offered by RBI is useful only for those who are facing a cash crunch or are in a great need for liquidity. So, you can consider the moratorium if:

  • You have an unsecure job/ lost your job and need liquidity

  • Your business’ cash flow has been severely disrupted

However, if you have a secure job, have not witnessed loss of income, or your regular cash flow has not been disrupted, it is better for you to pay your EMIs uninterrupted. The same holds if you have investments that can be liquidated with ease.

By continuing to pay your EMIs you:

  • Avoid inflated loan repayment

  • Reduce the burden on the financial system

Bajaj Finance Limited EMI Moratorium

Bajaj Finance Limited is offering a moratorium to customers having no more than 2 EMIs due in any of their loans. Customers can request a moratorium for unpaid EMIs that are due in the month of March, April and May 2020. Your loan tenor will increase as interest will be added to the interest payable and principal outstanding for the time period of moratorium.

Additional Read: Calculate Moratorium EMI

Steps to Place a Request for a Moratorium from Bajaj Finserv?

With this information at hand, you can make the right decision about opting for the EMI moratorium.

Read Also: Bajaj Finance Limited Moratorium Policy

The content of this document is meant merely for information purposes. The personal loan features mentioned in this article are subject to updation, completion, revision, verification and the same may change materially based on policy revisions. For more details, please visit our Personal Loan terms and conditions page here.

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