Hello there. Before we get into the discussion of the recent EMI moratorium announced by the RBI on March 27th, 2020, I hope that you and your loved ones are doing well and are taking all the precautions to keep yourself safe from Covid-19.
Now let us see how we can plan our finances during this stressful period! To give us all a breather RBI has proposed a relief package. Where the banks and other financial institutions have been permitted to give borrowers a “moratorium” or in other words grace period of three months for payment of EMIs. This is proposed for home loans, auto loans, personal loans etc.
What does this mean for you as a customer? This means that you have an option to miss the EMI payments that you have between 1st March to 31st May 2020 (moratorium period). This will help you reduce your burden during this period when lockdowns are in place and business and cash flows are impacted. But (all good things in life are followed by a “but”), RBI has mentioned that the interest for this moratorium period will continue to accrue on the outstanding loans. This means that the interest for the moratorium period has to be paid back later by the customer.
A few more details on the moratorium in case you missed the small print….
- The decision to opt for a moratorium is yours. You can choose to pay your regular EMIs. This will definitely save you additional interest.
- The moratorium period has been defined as 1st March to 31st May and the announcement was made on 27th March. Most of you responsible borrowers have already paid your March EMIs, so that means, you get an effective moratorium of 2 months, that is April and May!
- Also, this moratorium is valid only for loans that were existing as on 1st March 2020. So, in case your loan was disbursed after 1st March 2020, then the moratorium is not applicable to you.
With me so far? Let me make it more clear with an example:
[For purpose of discussion, we will refer to a sample customer transaction:
Loan Amount: Rs. 10 Lakhs
EMI: Rs. 12,074
Original loan tenure: 240 months
Balance loan tenure: 200 months (starting from April, 2020 and ending in Nov, 2036)
The customer has already cleared his 4th March EMI]
The above customer will pay an EMI of Rs 12,074 on 4th April and 4th May in the normal course. These EMIs consist of interest component of Rs 10,784 and Rs 10,770 and principal component of Rs 1,291 and Rs 1,305 respectively. However, we propose to offer a Moratorium Program to this customer.
- Under this program, customer will not pay any EMI/Interest in April and May.
- Customer will resume paying his monthly EMI from 4th June 2020. This will have respective break up of interest and principal. (Principal repayment will continue from June 2020)
- Since we have not recovered any principal from the customer in April and May, this will result in pushing out the maturity of the loan by 2 months. Customer’s balance tenure of 200 months will now start from June 2020 and end in Jan 2037.
- This still leaves us with the interest for Apr and May to be recovered. This amount (Rs 10,784 + Rs 10,770) is equal to Rs 21,554.
- At Home First, we propose to give customers 2 options to pay this back.
- Rs 21,554 to be paid back in 6 equal instalments along with interest on this amount at the same rate of interest as the parent loan (Additional amount of Rs 3,798 in addition to regular EMI of Rs 12,074 starting from June 2020). Repayment of additional amount will also start from 4th June 2020
- Rs 21,554 to be paid back in 12 equal instalments along with interest on this amount at the same rate of interest as the parent loan (Additional amount of Rs 1,963 in addition to regular EMI of Rs 12,074 starting from June 2020). Repayment of additional amount will also start from 4th June 2020
By now it should’ve become clear to you that opting for the moratorium is going to increase your loan burden i.e the interest outflow. Therefore, the smarter thing to do here is to pay your EMIs on time as per the schedule if you can afford to. Please opt-in for the moratorium only if you’re facing a huge cash flow issue!
Now, what happens to your credit score if you opt for the moratorium? Here’s the good part, the answer is “nothing”! Opting for a moratorium will not impact your credit score.
We hope this was worth your time and now you would be able to make a more informed choice! Please stay home and take care!
Share this article on WhatsApp.
The banks and other financial institutions have been permitted by RBI to give borrowers a grace period of three months (March, April & May) for payment of EMIs. RBI’s moratorium is just a temporary relief on the immediate obligation of the EMIs and NOT a waiver of the payment. Also, nonpayment of the EMI will attract an added interest burden on you. Therefore, the smarter thing to do here is to pay your EMIs on time as per the schedule if you can afford to. Please opt-in for the moratorium only if you’re facing a huge cash flow issue due to COVID-19!
Moratorium refers to the period during which you do not have to pay an EMI on the loan taken. These EMIs are NOT waived off. The collection of the same is postponed by some time. In this case, it’s 3 months.
The moratorium was announced on 27th March, for the installments which were due between 1st March to 31st May 2020. If you have already paid you March EMI as per your schedule, you can opt-in to postpone the payment of April & May EMIs (Due on 4th April and 4th May). Again, only choose this if you are severely affected by the pandemic.
We have the following options for you to pay the 2 postponed EMIs:
a) You can pay the 2 months interest in 6 equal installments in addition to your regular EMIs starting from June 2020. Interest will be charged at your existing ROI.
b) You can pay the 2 months interest in 12 equal installments in addition to your regular EMIs starting from June 2020. Interest will be charged at your existing ROI.
The answer is YES! If you choose to postpone your EMIs by 2 months, your existing loan tenure would get extended by 2 months.
At this stage, we are not in a position to consider any reduction in the rate of interest.
Glad you asked. No! Bounce charges or penalty charges will not be applicable up to 31st May 2020.
Due to lockdown, we will be unable to collect cash. However, you can directly deposit cash in our bank account as soon as you can travel to the bank.
Our branches are temporarily closed for service but we are available on email, WhatsApp and phone. You can also download our app for accessing your account details and query resolution. Please use our mobile app to make your payment.
If you are overdue on your payments before 1st Mar 2020, then you are liable to pay them as soon as possible. A moratorium is not applicable to payments that were due before 1st Mar 2020.
If this happens, your account will go into default! This is why we are encouraging regular EMI payments if possible.