What is the EMI Moratorium on EMI for Loans & Credit Cards as part of Covid-19 relief?

EMI Moratorium was announced by RBI during 2020 to provide temporary relief to borrowers who had faced difficulties in making their loan repayments in a timely manner on account of the Covid-19 crisis. People had faced financial distress due to various reasons like job loss, salary cuts, medical bills and so on. This made RBI come up with the EMI moratorium scheme for a period of 6 months between 1st March and 31st August 2020.

As it was a temporary relief scheme, it was advisable for borrowers to opt for the scheme only in case of a cash crunch, otherwise, they would have to end up having to pay more interest.  This is so because the interest portion only gets deferred for the moratorium period, after the period ends, the same has to be paid including interest during the moratorium period.  This scheme is no longer valid as the moratorium period has expired.

What is the EMI Moratorium – COVID-19 Relief on EMI for Loans & Credit Cards?

Home loan borrowers who had opted for the 6 month EMI moratorium did not have to pay interest for the moratorium period, resulting in reduced cash outflow. However, the home loan being a long-term loan, one should be prudent while opting for a moratorium on home loans. They should consider it only if there is a genuine cash crunch, otherwise, it increases the risk of increased interest burden and tenure could also increase accordingly.

The RBI EMI Moratorium relief scheme was also applicable on credit card dues for the above period of 6 months. This does not mean that the interest portion gets waived off. In fact, due to the credit card having a higher rate of interest,  this interest keeps getting accrued for the six month moratorium period. This meant that once the moratorium period ended, the borrower will have to pay interest on this six month period also, along with the normal credit card dues, increasing cash outflow significantly. This interest charge is normally about 2%-4%.

It is therefore considered prudent to consider the EMI moratorium scheme only if you are facing a cash crunch, otherwise it will only entail higher interest costs.