Should You Pay Your EMIs Later?

The RBI has announced several measures to make it easy for the common man to service their debts in light of COVID-19 pandemic. 

One of them is a three-month moratorium on EMI payments. The moratorium is for payment of instalments falling in the period from March 1, 2020 to May 31, 2020. This would include principal or interest component, bullet repayments. 

Banks do not have to follow this, but they are expected to give their customers this benefit. SBI, Bank of Baroda and HDFC Bank have already announced they will pass on the benefit to their customers. Others are likely to follow suit. 

One should understand that this is a moratorium and not a waiver. Interest will continue to accumulate on the principal outstanding. The loan period will get extended for the period by which you avail the moratorium, or the EMI will go up. 

If you want to opt for the moratorium, you have to inform the bank. If you do not inform the bank, the EMIs will proceed as usual. For some banks, you have to let them know if you do not choose the moratorium. Many banks have also initiated a process where you can send a SMS to let them know your decision. 

Now, the question is whether you should opt for the moratorium or not. 

Says Renu Maheswari, CEO and Principal Advisor, Finscholarz Wealth Managers, “If I were you I would continue to pay if I could afford to. There are two reasons- this is not a waiver, but a postponement. Also, I would not like to pile up debts in such uncertainty.” 

As we have seen, the interest will continue to accumulate on the principal outstanding. Says Anant Ladha, Founder, Invest Aaj For Kal, “ Ifyou have a loan of Rs 50 lakh at 8.50 per cent per annum and you opt for a 3 month moratorium, your principal amount will go up by about Rs 1.07 lakh. So if you have a source of income, always pay.” 

In case you cannot pay a big EMI like a home loan EMI because of a delay in salary of an impending job loss, it might make sense to opt for the moratorium. 

However, Ladha warns one should not spend this money or invest it in the stock markets. Even keeping extra money in a savings bank account does not make sense as it will earn you only 4 per cent interest, which is lower than the interest rate you have to eventually pay. 

If you opt for the moratorium, you should make sure that you put existing funds aside so that you can pay it off immediately when the moratorium period is over.