Is EMI moratorium beneficial? Should you opt for deferment of interest? Read this before making any decision.

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RBI announced it’s relief amid this corona virus pandemic on 27.03.2020 wherein it suggested moratorium to bank for 3 months and many bank implemented the same by deferring the interest for 3 months, some examples of which are as under:

ICICI bank has published the following example with regard to their moratorium policy which is as under:

“The accrued interest would be added to the principal amount which will increase the residual tenure of the loan except in cases where extension of tenure is not possible in which case the EMI amount will increase. Please refer to the relevant applicable terms and conditions for further details.Illustration: Mr Kumar availed of a housing loan in Mar 01, 2020 amounting to Rs one crore with loan tenure of 236 months. If Mr Kumar wants to avail of moratorium of installment of Rs 90,521.00 which is due on Apr 01, 2020 then the interest for the month of March amounting to Rs 75,000 will be added to the principal amount and revised opening principal amount on Apr 01, 2020 will become Rs 10,075,000. The interest will be computed on revised principal. Similarly, the interest for the month of April which is payable on May 01, 2020 of Rs 75,562 will be added to the opening principal on May 01, 2020 which will be Rs 10,150,562. The interest will be computed on revised principal. In this case Mr Kumar’s tenure will increase from 236 months to 249 months considering the unchanged rate of interest and installment amount during this period.”

SBI issued the following statement:

“Interest shall continue to accrue on the outstanding portion of the Term Loan during the moratorium period. The possible impact of the extension of the repayment period has been explained below :

Impact in case of Auto Loan: For a loan of Rs.6 Lacs with a remaining maturity of 54 months the additional interest payable would be Rs.19,000 approx. equal to additional 1.5 EMIs.

Impact in case of Home Loan: For a loan of Rs.30 Lacs with a remaining maturity of 15 years , the net additional interest would be approx.. 2.34 Lacs equal to 8 EMIs.”

Same approach has been adopted by many banks those who are accepting the suggestion from RBI, and hence if you study the approach there is clearly no relaxation in interest of these 3 months, instead it is just deferring to future and will be added to your loan amount and again interest on same would be recovered from your in future. Thus in short they would charge interest on such interest.

Also the banks are increasing the tenure of the loan so that people think that they are paying the same EMI whereas in realty they would be paying more amount as compared to their earlier loan amount.

This logic is easy to understand because banks will have to pay interest on FD and saving bank and hence to bear that cost they will have to charge interest from you.

Hence, looking at the above scheme it is clear that this moratorium is only beneficial for those who actually don’t have any money to repay the loans and this will only save the penalty and credit score on one hand but on the other hand it will increase your cost.

It’s a very smartly drafted thing and bank people are selling it in a very beautiful manner, hence think wisely before accepting any such offer.

This article is just for information purpose it is always advisable to hire a professional for practical execution. If you need assistance you can ask a question to our expert and get the answer within an hour or post a comment about your views on the post and also subscribe to our newsletter for latest weekly updates.

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