The EMI moratorium, initially allowed from March to May, has now been extended to August. Banks and NBFCs can allow you, at their discretion, to avail of the moratorium on your loan. If you are facing difficulties due to the lockdown, for instance, loss of job or pay cut or general uncertainty, you would be tempted to avail of the moratorium. However, you have to be aware of the catch. For the period you avail of the moratorium, there is no interest waiver.
That means, the three or six EMIs which you are now deciding not to pay, you will have to pay later. Not only that, you will have to pay a hefty interest on this interest (for the three or six months) later on.
As an example, if you have taken a 10-year home loan and avail of three months’ moratorium, at the end of 10 years, you will have to pay three more EMIs. But the story does not end there. Interest will be compounded for a period of 10 years (or your remaining period) and the additional EMIs you will have to pay will be much more than three. This is due to the power of compounding; over a long period, the interest on the three or six months of EMI will be a hefty amount.
Net-net, in spite of the lockdown blues, if you are in a position to pay your EMIs, it is in your benefit. In case you are in dire straits, then the only implication of the moratorium for you is that you will not be called a defaulter.
Pramada Finserv 