EMI moratorium: Your costs and loan tenure to rise

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Customers can opt for moratorium on payment of installments and interest for various term loans/credit card dues, and/or defer the interest for working capital facilities due between March 1, 2020 and May 31, 2020.

However, this moratorium is not an interest waiver, but a deferment of payments, meaning the additional interest costs will have to be borne by the customers. Various banks have clarified to its customers that it is only a deferment option and not a concession or waiver, since interest would continue to accrue for this period. The repayment would resume from June 2020, once the deferment period is over.

Meanwhile, a host of state-run banks, which control over two-thirds of the system, have gone for an option where the repayments automatically get deferred unless a customer informs of her willingness to pay.

For long term borrowers like home loans, it is not just three equated monthly instalments (EMIs) that will get added to your home loan repayments if you choose to go in for a moratorium. Asking borrowers to defer EMIs only if they have no cash, banks have said that interest for the three months would get compounded if not repaid at the end of the period. This could lead to the borrowers paying for several months more depending on the length of their loans and whether they pre-pay, the Economic Times reported.

In an illustration of how the moratorium would work, State Bank of India said that for a loan of Rs 30 lakh with a remaining maturity of 15 years, the net additional interest would be approximately Rs 2.34 lakh—equal to 8 EMIs. For a loan of Rs 6 lakh with a remaining maturity of 54 months, the additional interest payable would be around Rs 19,000, equal to an additional 1.5 EMIs. This is assuming there is no pre-payment or change in the interest rate. SBI also said that the bank would, as default, debit the customer’s account unless it is asked not to, the report said.

“The moratorium facility is available for all borrowers. A call should be taken based on how desperately you need this,” said C S Setty, MD, SBI. If the customer does not have balance in his account and the standing instructions for debit fail, the bank will treat it as an exercise of the moratorium option. Borrowers have been advised to give instructions in advance to stall the debit, even if they have no money because the bank where they have their savings account might charge them for failure of standing instruction.

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