To fight the ongoing COVID-19 crisis, RBI recently announced a 3-month moratorium on all term loans outstanding as of 1st March, 2020, to relax the financial burden on individuals and corporates. Simply put, your bank can allow you to defer payments on your home, personal, education, auto loans or your credit card dues for a period of 3 months starting from 1st March, 2020 to 31st May, 2020. But should you avail this benefit?
This scheme would provide you a cash flow relief of 3 months and any payment delay during these 3 months won't impact your credit score in any manner. But you should bear in mind that this merely allows deferment of your monthly financial liabilities and in no way can be treated as an interest waiver. Your outstanding loan amount will keep on incurring interest during these months thus making your repayments costlier later.
Consider the following example. EMI on an INR 30 lakh outstanding home loan at 9% p.a. interest is INR 26,992 for 20 years. If you opt for 3 months moratorium but stick to your original tenure, then your EMIs will increase to INR 27,729 for the remaining months. If you stick to the same EMI then you have to extend your tenure by 16 months. Hence, deferment will result in a higher liability for you.
This holds true for credit cards also. Credit cards charge a hefty interest at 36-42% p.a. and hence deferring credit card repayments/EMIs might cost you heavily. For example, on an outstanding credit card bill of INR 50,000 as of 1st Mar, you would have to shell out INR 54,636 (50,000 principal + 4,636 interest @3% per month) on June 1st along with an 18% GST on interest and other charges!
In short, you should avail this benefit if and only if you do not have enough money in your emergency fund or you are having cash flow issues due to a pay cut, delayed salary, leave without pay, job loss, etc. In case you are deferring credit card payments, it is wise to replace the credit card debt with a much cheaper personal loan which would cost you around 10-12% p.a. For availing the moratorium, please get in touch with your bank.
If you're financially capable of servicing your monthly debt obligations during the crisis, then it is best for you to pay your EMIs.
