Pros and Cons of Loan EMI Moratorium

With the Reserve Bank of India (RBI) allowing all commercial banks operating in the country to offer its customers a moratorium of three months for repayment of term loan, many lenders have swung into action. As per the RBI directive, banks are offering moratorium on instalments which fall between 1 March and 31 May.

Those banks which have rolled out the moratorium to its customers are informing them about it, how to go about the deferment of Equated Monthly Instalments (EMIs), the payable interest etc. in a bid to reduce the impact caused to them by the outbreak of coronavirus.

Here, we look at some pros and cons regarding home loan moratorium. Read on to know more about it.

Benefits of Home loan Moratorium

• Moratorium will reduce financial stress of those facing income uncertainty due to the coronavirus crisis.
• If you avail moratorium, it will be not be considered as default. So, your credit score won’t get affected.
• Banks will not charge any penalty for availing moratorium.

Drawbacks of Home loan Moratorium

• First thing first, the moratorium is not a waiver. You will have to pay the EMIs later. Given that unpaid EMIs will be added to the principal amount, you will be required to pay a higher EMIs starting July for the remainder of your loan tenure. This is put additional burden on you.

• Opting for moratorium will have tax implications. The tax reduction which you avail on interest payments will be affected if moratorium is opted for.
• Deferring two EMIs could extend your loan by 6 to 10 months.
• The interest payable on the loan will be higher when compared to the current interest amount.

What should I do?

Many lenders like State Bank of India, HDFC bank, Bank of Baroda, etc. have come forward and offered moratorium to its customers under the central’s bank relief package. While many public and private sectors are offering moratorium, experts feel that pay off the EMIs now is better in case you are able to pay it. Even the banks have stated this and urged its customers to clear the EMIs, if possible. Remember, moratorium comes at a cost. Avail it only if it is absolutely necessary.