That way, you will avoid higher interest payment and longer loan tenures

Last week, the Reserve Bank of India (RBI) announced that banks can offer a three-month moratorium on all the outstanding term loans. These include home, personal, education and auto loans. Credit card payments too can be postponed for three months. Taking this option would help save cash for you. But should you opt for the moratorium? Moneycontrol spoke to three financial advisors to get their views. Here is what they had to say.

Lovaii Navlakhi, Managing Director and CEO of International Money Matters

This three-month EMI moratorium is very beneficial for people belonging to the unorganized sector, business and salaried classes having to take pay cuts or delayed salary payments or even losing jobs due to which their short-term cashflows are adversely affected, especially given the lockdown.

If you currently fear a job loss or income disruption, you can also use this benefit for building your contingency corpus and prepare for the worst. By deferring payments for three months, your credit score will not get impacted. However, interest will continue to accrue during these three months which means you will be paying a higher interest cost. Also, your loan tenure will get extended by additional three months in the long run.

It is advisable for people who have a stable income and are comfortable servicing their monthly EMIs to continue doing so. In this way, you will avoid higher interest payment and longer loan tenures.

Vishal Dhawan, Certified financial planner and founder of Plan Ahead Wealth Advisors

The announcement on a moratorium on EMIs for three months has been welcomed by most, but it needs to be used carefully. Considering that interest will continue to accrue on your loan during this period, this effectively means that you will be paying higher interest on the loan after the moratorium.

If you are currently employed in an industry that has been directly impacted by the coronavirus – tourism, airlines and retail – and therefore believe that there is a significant risk of your income either stopping completely, or reducing significantly from current levels, you may want to consider using this moratorium.

Besides the sector that you are professionally associated with, you need to also ensure that you have an adequate emergency corpus to support both living expenses (including EMIs) and any medical costs for a period of at least 12 months. If you have that provision, avoid using the moratorium as the interest costs on loans are also likely to head down further, thereby saving you additional sums. In addition, remember that each bank will have its own policy for dealing with this and you may need to approach the bank to avail of this moratorium for yourself specifically, if you choose to take advantage of it.

Harsh Roongta, SEBI registered Investment Adviser

You can defer payment of EMIs due in March, April and May, but interest will continue to accrue for this period. The entire interest accrued for the three-month period will have to be paid along with your regular June instalment. Most likely the interest rate will be the same as your regular loan interest rate. This is not much of a concession for anyone whose cash flows are not likely to be immediately impacted on account of the lockdown. The interest for the three-month period will need to be paid as a lump-sum in June 2020.

So, unless your cashflows are immediately impacted as is the case with many small businesses/professionals or you have lost your job or are in the imminent danger of losing your job, availing this cash flow benefit makes little sense since you will need to pay back the interest in a big lump-sum at the end of three months. However, if you are insecure about your job prospects in the next two months or your salary cashflows are likely to be affected, you can avail of this moratorium scheme.



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