Last week RBI has extended 3 months moratorium on loan EMIs provided earlier now till August, 2020. Due to corona virus situation many might not be able to pay outstanding loan EMIs due to various reasons. Considering this crisis, RBI has proposed that banks and financial institutions can provide 3 month moratorium on loan EMIs in simple terms, this is like deferment of EMI payments where you need not pay your monthly instalments for next 3 months. People call this as EMI Holiday.
Almost all loans will be covered under this Moratorium and all banks including NBFCs, small Banks, Co-operative banks can extend this facility to their customers. In some institutions you need to opt-in to get this facility and in for you need to send opt-out request in case you don’t want to avail this option.
The only advantage with this option is, in case you opt for this so called EMI holiday your CIBIL score won’t get affected so you don’t have to worry on the same.
So your CIBIL score would not decrease due to this but your Interest Outgo and your EMI tenure will increase substantially due to this Moratorium. Yes, this is because your Loan provider will charge interest on the outstanding loan amount and due to this EMI holiday as you don’t pay your Principal and the Interest the outstanding loan amount will be the same for next 3 or 6 months and as a result of this your interest outgo and your EMI tenure will surely increase.
Now that we are sure of the disadvantage of opting this Moratorium, i would like to share a interesting working from Mr. ASEEM DHRU, Managing Director & CEO of SBFC Finance:
If you have a Rs 15 lakh home loan outstanding for 20 years @9.5% p.a., your Equated Monthly Instalment (EMI) is roughly Rs 14,000 per month. If you do not pay for 6 months, you save Rs 84,000, but your loan tenure will go up by 4 years and you will end up paying an additional interest of Rs 5.7 lakhs! You read that right.
Assuming that EMI is constant and no single has been paid till date.
If you pay regularly
Principal Outstanding = Rs 15 lakh
Interest per annum = 9.5%
Tenure = 240 months (20 years)
EMI pending = 240 months
EMI amount = Rs 13,982
Interest paid = Rs 18,55,672
Total amount paid = Rs 33,55,672
If you avail moratorium
Interest per annum = 9.5%
Moratorium = 6 months
New Tenure = 281 months + 6 months = 287 months
Tenure extension = 47 months
EMI amount = Rs 13,974
Interest paid = Rs 24,26,820
Total amount paid = Rs 39,26,820
Interest difference = Rs 5,71,148 &
Principal Outstanding = Rs. 15,72,675
Source: https://www.morningstar.in/posts/58236/home-loan-moratorium-extracts.aspx
If you are shocked with the amount, this is nothing but the effect of compounding on the loan side.
Happy Investing!
R♥Vi
Disclaimer: The information contained in this document is compiled from third party and publically available sources and is included for general information purposes only. Views expressed cannot be construed to be a decision to invest. The statements contained herein are based on current views and involve known and unknown risks and uncertainties. The recipient(s) before acting on any information herein should make his/her/their own investigation and seek appropriate professional advice.
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