Higher interest if EMI payment deferred for three months due to Covid-19 blocking

NEW DELHI: Prepare to pay higher interest on your outstanding loan if you choose not to pay the EMI on your mortgage or car loan for the next three months under a moratorium announced by the Reserve Bank of India on Friday.

Analysts and experts tracking the sector said banks would calculate a simple interest rate for the three-month period when the loan payment was due but was not paid with the moratorium. This would add to your EMIs at the end of the three-month tolerance, increasing your monthly bill.

Therefore, if an EMI payment differs from, say, Rs 1,000, and the bank is charging interest at a rate of 10 percent on the outstanding balance, it will end up paying an additional Rs 25 for each of the three EMIs that do not have been paid during the moratorium. This additional interest may be added to all of your future EMIs or your loan tenure could be extended to the same level of EMI.

Whether clients will have to pay this additional interest at once or whether they will be allowed to adjust it as additional EMI is something banks need to clarify, said a financial sector analyst who asked not to be identified.

More in Covid-19 > As a result of the moratorium, the tenure of such loans will be extended for three months, which should be possible since variable rate loan contracts generally have a provision for the extension of loan tenure.

If the additional interest charge for the three-month amortization period is also divided equally across all future EMIs, the monthly bill per customer may increase or banks may decide to keep the EMI the same but increase the duration of the loan by a few months.

The 3-month EMI moratorium is a welcome measure for those clients whose short-term cash flows are adversely affected by the coronavirus pandemic. This basically means that customers can defer their immediate EMI payments, but in June they will have to resume payments. It is not an exemption, but just a change in payment schedules, CBO and co-founder, MoneyTap said.

Clients who have the ability to pay (such as salaried professionals whose earnings are still intact) should compare their original cash flows against revised payment schedules and accrued interest payments, and then make a call about what they have. more sense to them, he added.

On Friday, he announced a three-month moratorium on the EMIs of all installment loans past due between March 1 and May 31, and said the repayment schedule for all those loans would change three months after the moratorium.

This will provide relief to all borrowers, including those with Home Loans, Auto Loans, Education Loans, Agricultural Term Loans, Retail and Crop Loans in your name. It will also be applicable in credit card fees.

For all term loans (including agricultural, retail, and crop term loans), all commercial banks (including regional rural banks, small finance banks, and local area banks), banks Cooperatives, financial institutions across India, and NBFCs (including home finance companies) may grant a three-month moratorium on the payment of all fees due between March 1, 2020, and May 31, 2020, the RBI circular told all banks and non-bank financial companies.

The repayment schedule of such loans, as well as the residual term, will generally be moved three months after the moratorium period. Interest will continue to accrue on the outstanding portion of the term loans during the moratorium period, RBI said.

At the end of January, more than Rs 13 lakh crore for home loans and Rs 2 lakh crore for car loans were outstanding, according to data from the Reserve.

In addition to retail borrowers, micro, small and medium-sized enterprises and large enterprises will also benefit from the relaxation of RBI's loan repayment.