Explained: Why it is not a good idea to opt for the 3 month moratorium on EMIs

New Delhi, Mar 31: The Reserve Bank of India had last week permitted banks to announce a three month moratorium period on EMIs.

Some banks will reach out to their customers and give them an option to opt in or opt out of the moratorium of three months. However this option that is being offered by the banks comes with a catch.

In case you have a loan outstanding of Rs 50 lakh at the rate of 8.5 per cent interest and your loan tenure is 19 years, then the interest of the three months moratorium period gets added on to your principal amount. In such a scenario the interest that gets added on will be Rs 1.05 lakh. This would mean that after the moratorium period ends, then your loan amount would be Rs 51.05 lakh.

In case you decide to opt in for the option to keep your loan amount the same then the tenure would increase. This means that your tenure of 228 months will rise to 240 months. In case you want to keep your loan amount and tenure as the same, then your EMI would rise. This would mean that your EMI would be Rs 45,202 as opposed to the Rs 44,272 that you are paying currently.

However this is in the case of substantially large amounts. For example if you have a loan amount of Rs 15 lakhs for 40 months and you opt for the three month moratorium, your tenure will increase from 40 to 41 months. The EMI would remain the same.

Going by this it would be advisable not to opt for the moratorium period, if you are in a position to pay your EMIs. Opting for it at this moment, would only add strain in the future.