Do you know the whole truth about EMI Moratorium? What are the facts that no one is elaborating which the borrowers deserve to know before opting for Moratorium?
1. What is EMI Moratorium?
It means that borrowers can skip their payments which are due from 1 March 2020 to 31 may 2020. It includes (i) principal and/or interest components (ii) bullet prepayments (iii) EMIs (iv) credit card dues.
2. What are the benefits to the borrowers?
(i) Non payment will not impact your credit score.
(ii) The bank cannot declare you as a defaulter.
(iii) You don’t have to pay any late payment/charges.
3. But what are the losses to the borrowers?
As few banks have mentioned in their FAQs, borrowers will have to pay interest on the whole amount for the Moratorium period that means Moratorium is a facility to defer the payment and it should not be confused with interest waiver.
That’s not all, what no one is telling is; The interest calculated for the Moratorium period will be added to your principal amount and you will have to pay interest again on that interest, for the whole loan period.
Let’s understand this in detail with proper examples:
|Remaining Tenor (months)||60||120||180||240|
|Monthly interest rate||1.00%||0.75%||0.75%||0.75%|
|Interest for the first month||5,000||22,500||37,500||37,500|
|Principal O/s at the end of first month||5,05,000||30,22,500||50,37,500||50,37,500|
|Interest for the second month||5,050||22,669||37,781||37,781|
|Principal O/s at the end of second month||5,10,050||30,45,169||50,75,281||50,75,281|
|Interest for the third month||5,101||22,839||38,065||38,065|
|Principal O/s at the end of third month*||5,15,151||30,68,008||51,13,346||51,13,346|
|Tenure kept constant but EMI changed|
|EMI for the increased principal (New EMI)||11,459||38,864||51,863||46,006|
|Increase in EMI (A)||337||861||1,150||1,020|
|Total excess payment over the 180 months||60,663||1,55,068||2,06,933||1,83,564|
|EMI kept constant but Tenure changed|
|No. of EMIs required to repay the loan||62.5||124.5||188.9||256.1|
|No. of Extra EMIs to be paid (B)||2.52||4.48||8.90||16.13|
|Total Excess Payment (EMI * B)||28,009||1,70,150||4,51,335||7,25,693|
So, The people who are thinking that they will just have to pay the EMI three month later and the people who are thinking that they just have to pay 3 months interest extra; both are wrong. You have to pay a lot more than that !
Wait, what !! So where’s the benefit of so-called relief in that exactly??Experts feel that the three months Moratorium on repayment on loans seems to be benefiting banks rather than borrowers, as they will have to pay accumulated interest through increased number of EMIs.
→ It seems like a double loss for borrowers as on one side income has been hit due to COVID-19 pandemic and on the other hand, there is a threat of increased debt and tenure if they opt for RBI relief measure.
Then why should I take the Moratorium?
You should take the Moratorium only and only if there is no other way that you can pay your EMI without taking another debt or loan. Releasing FAQs, Indian banks Association (IBA) said that borrowers whose incomes have not been impacted, should pay their EMI in time.
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