Pause your EMIs? Here's the real cost of loan moratoriums
What's the story
In times of crisis (like the current one), banks in India might provide a loan moratorium, which lets you pause your loan payments for a while.
This sounds great, right? A little break from those bills could be just what you need if you're having a tough time financially.
But, hold on! It's super important to know what this really means for your money before you jump in.
Basics
Know what you're signing up for
A loan moratorium may pause your EMIs for a few months, but interest still accumulates on the principal amount during this hiatus.
So, while you won't need to cough up payments right away, the total interest payable over the loan tenure goes up.
Before opting for a moratorium, it's crucial to compute this extra expense and evaluate its effect on your long-term financial well-being.
Interest impact
Interest accumulation during moratorium
During the moratorium, interest is not waived but capitalized, i.e., added to the outstanding loan balance.
This leads to either increased EMIs or an extended loan tenure post-moratorium.
By using online EMI calculators, borrowers can gauge the implications on their future payments. These tools shed light on how the capitalized interest contributes to the total payable amount and influences the repayment schedule.
Financial planning
Assessing your financial health
Before choosing the moratorium, assess your financial position prudently.
If you possess adequate emergency savings or secure income streams to manage your EMIs and other expenses, it's more advantageous to stick with your regular payments.
This way, you avoid the burden of extra interest and prevent your debt from snowballing.
Lender interaction
Communicate with your lender
Talking to your lender is crucial before opting for a loan moratorium. If you're facing financial hardship, communicate that to your lender - they may be able to provide more customized solutions.
Some lenders might be willing to offer more favorable terms or recommend alternative options that could help limit long-term costs.
Remember, it's essential to carefully consider the advantages and disadvantages based on your specific financial circumstances and goals.