The Reserve Bank of India today has extended the loan moratorium period by another three months until 31 August. A moratorium period is a time when borrower is not required to make any payment. The central bank of India had earlier provided a moratorium on all term loans due between 1 March and 31 May 2020.
Should you opt for it?
The three-month moratorium will be beneficial for those whose short-term cash flows are severely affected by coronavirus pandemic.
If you decide not to pay EMIs on your home loan or auto loan for the next three months, be ready to pay higher interest on your outstanding loan amount. The banks will charge the interest rate for the three-month period in which loan repayment is due but is not paid under the moratorium. This amount will added into your EMIs at the end of three-month forbearance, raising your monthly bill.
So, if you're deferring payment of an EMI of, say ₹1,000, and the bank is charging interest at the rate 10% on outstanding, you will end up paying ₹25 extra on each of the three EMIs that has not been paid during the moratorium. This additional interest may either be added up to all your future EMIs or your loan tenure could get extended at the same EMI level.
As a result of the moratorium, the tenure of such loans will get extended by three months which should be possible as floating rate loan contracts typically have a provision for extension of loan tenure.
If additional interest burden for three month a moratorium period is also equally divided in all future EMIs, the monthly bill for customer may increase or banks may decide to keep EMIs same but increase the tenure of loan by a few months.
With inputs from IANS