All You Need to Know About the Lockdown EMI Moratorium

Have you taken out a personal loan in the last few years and are still repaying its EMIs? If so, you would’ve received a call from your bank asking if you want to avail the loan repayment moratorium introduced by the RBI. In a bid to help consumers tackle financial distress caused by the COVID-19 pandemic, the Reserve Bank of India, in a notification dated March 27, 2020, announced a three-month moratorium on terms loans until May 31, 2020. The moratorium was further extended till August 31, 2020, to give people more time to repay their loan EMIs. The extension of the moratorium has given rise to a few misconceptions, the biggest one being that under the moratorium, you needn’t repay your loan EMIs at all. This isn’t true, and you should know that the moratorium isn’t a waiver of your loan, but just a grace period to help you come up with the funds more efficiently. While your credit score won’t be harmed during this period, the interest will still accrue on your loan. It will then be added to the monthly EMI amount. Here’s are the options you can choose from:

1.    Make a One-Time Payment of the Interest Accrued

Right now, with the way things are going, this might seem like the least favourable option to you. While the lockdown is continuing in a few states, it is being extended in a few others. The general atmosphere is also one of worry and panic; people are more worried about job losses and pay cuts than ever. Right now, everyone’s focus is on conserving cash and saving as much money as possible for emergencies. So, if you’re someone that has availed of the moratorium twice, making a one-time payment of the accrued interest may seem like a terrible idea. However, it’s your best and least expensive option. It will leave the rest of your EMIs and loan tenure unchanged. You get to finish paying off the loan as planned.

2.    Hike the EMI Amount Without Changing the Loan Tenure

If you’re unable to repay the accrued interest amount in one shot, then this is your next best option. It is your best option, especially if you have a longer loan tenure. The increase in your monthly EMI will be marginal, and your additional interest burden will be lesser (than you imagine). You must also try to prepay your loan if it’s a long-term loan. If you’re among the lucky few who gets a deferred bonus or even a salary hike, please consider using the extra funds to prepay your loan partially. Doing so will help you lessen the overall interest burden on the loan.

3.    Extend the Tenure Without Changing the EMI Amount

Given the current situation in the country, most borrowers are likely to opt for this option by default. However, please note that this would be your most expensive option. Increasing the overall tenure on your loan would make even small personal loans seem large, as the interest burden would increase significantly. Between extending the loan tenure and increasing your monthly EMI, the latter is still a better option, as the additional interest amount you have to pay is lower. However, if your focus is to conserve cash while also servicing your loans, this may be the best option you have.

In Conclusion

While we have listed the three options that you, as a borrower, can choose from, you have to make an informed decision. You may feel extending your loan tenure is the best option right now, it may not be the most reasonable one in the long-term. As stated earlier, the best option is to pay the accrued interest amount in one shot and continue with your loan as usual. However, that’s not possible for everybody. So, while deciding between hiking your EMIs and increasing your loan tenure, please remember to consider the additional interest burden in each situation and proceed accordingly.On the other hand, if you feel you have the bandwidth for a small personal loan, look no further than KreditBee. Just download the KreditBee app from the Google Play Store, complete your profile, and leave the rest to us! To learn more, you can write to us at [email protected] or reach us at +080 44 292 200.

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