The Covid-19 relief measures announced by the government in the last week of March, 2020 were welcomed by all.
Let’s not forget this that moratorium is for payment of monthly EMIs, not on the interest:
The government has instructed banks and financial institutions to give borrowers a grace period of three months for payment of EMIs. If you have a loan currently going, you need not pay the EMI for March, April and May. But, this does not mean that three months’ EMI is waived off. Only a grace period is provided, not a waiver of the loan. Also, the banks will likely charge interest for three months on the unpaid amount.
Credit card balance
If you don’t pay your EMI’s for three months and the bank decides to charge, the cumulative interest calculated could be more than 6-12%. So, we need to think twice before deciding if not to pay or better to pay.
Impact on credit score:
Under the Covid-19 relief measures announced, your credit history will not get impacted by non-payment, and your credit score will not dip due to non-payments.
Tax saving investments:
Apart from the relaxations given, the government has also extended the last date of filing tax returns for 2018-19. The deadline for tax saving investments for 2019-20 is also extended till 30th June,2020.
Bank providing home loan charges an annual interest rate of 8-9%, and if due to any reasons, you defer the payment for two months, the cumulative interest could add up. During this emi moratorium, borrowers can opt not to pay their equated monthly instalments (EMIs) or credit card dues. Now, some borrowers are too happy about EMI postponement decision that they will get the time of 3 months more to repay the loan amount completely. Still, some borrowers don’t want to defer the EMIs because they can manage to pay EMIs even during coronavirus lockdown. If you choose EMI delay, then your loan tenure will be extended by 3 months.
You can use Home Loan EMI calculators to estimate the effects and what the extension of loan tenure may impact your planning. Later Home Loan balance transfer will be an option you may seek to minimize the loss.
Effects on Loan EMIs
The cost of skipping the payments can be very high.
The covid-19 moratorium offered by lenders looks soothing but could add a significant burden to your interest. Since this is only a kind of grace period and not a waiver, banks will charge interest for the unpaid amount.
Think twice before going for the moratorium unless you’re facing a cash crunch. The cost of skipping the payments is very high, even though it will not hurt your credit history. If home loan is in process, then you must use the Home Loan EMI calculators to calculate how much interest will be levied accumulatively if you jump EMIs.
For instance, you have a home loan of Rs.30 Lacs running with a remaining maturity of 15 years, the net additional interest would be approx. 2.34 Lacs equal to 8 EMIs. So, if you defer three EMIs on your current home loan, you will end up paying eight EMIs more.
Avail only if you are not able to pay your loan EMIs
Though the EMIs need to be paid after three months, interest will continue to accrue. Lending institutions may decide to either give this option to all the customers or only to selected customers who asks for it. Borrowers should check the policy of their lenders since some must be planning to provide this benefit only to non-salaried customers.Read more: How to Apply for a Home Loan Online?
So, suggestion will be to avail this moratorium only if you are not able to pay your EMIs as your loan will not only get extended, but there would be extra interest to be paid overall.
If the customers decide to avail the EMI moratorium, there will be interest at the contracted rate on the outstanding loan. Ideally speaking, businesses and individual borrowers with sound financial health and stable jobs can and should repay their EMIs on time, so that they can be benefitted from their lowered interest rate.
While several banks have started offering this option to customers, there are a few things that you should keep in mind before you decide to opt for moratorium specially customers with running home loan. First, though there will be no penalties for skipping the EMIs, interest will continue to accrue on the unpaid balance. So, your outstanding for that period will go up.