Why Loan Moratorium is Bad for LONG TERM
                     Why Loan Moratorium is 
Bad for You in the Long Run
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Here's Why Loan Moratorium is Bad for You in the 
Long Run
• In an attempt to give some relief to borrowers who are struggling to pay their EMIs due to 
the COVID-19 pandemic and its fallout, the Reserve Bank of India (RBI) had asked banks to 
offer a moratorium for repayment of term loans for three months until May 31, 2020. The RBI 
further extended this moratorium period for another three months till August 31. The loans 
include all sorts of retail loans such as a personal loan, vehicle loan, home loan, gold loan, 
agriculture loan, and so on. Even credit cards are also eligible for the moratorium.  
• Hence, those loan borrowers who opted for the moratorium need not pay EMI on the loan 
until the next guidelines are issued by the central bank. During this period, the credit score of 
the borrowers will not get impacted. However, a moratorium does not mean a waiver or 
cancellation of the interest. The moratorium period allows borrowers to plan their finances 
better. 
• However, you should keep in mind that the loan moratorium will add to your burden in the 
long run. Hence, it is advisable to opt for the moratorium only if you are facing financial 
problems to meet your other expenses, otherwise, pay your EMIs regularly.
A moratorium is not a waiver
• Borrowers must keep in mind that the moratorium is not a loan waiver, it is 
a stay to their existing EMI payments for the given time. It is just a 
moratorium, which means you will have to pay the EMIs later. The interest 
for the moratorium period will be added to the outstanding amount, hence 
borrowers will be required to pay a higher EMI or the tenure of the loan will 
increase when the moratorium period is over. It will put an additional 
burden on them.
•  
• “The loan moratorium is help for cash flow only, not a reduction in payable 
amounts. Hence, only those who have liquidity issues (lost a job, cut in 
salary, etc) should avail the loan moratorium; as they continue to pay 
interest on the loan outstanding -- and the tenure will be extended by the 
3-month period too,” says Lovaii Navlakhi, Founder & CEO, International 
Money.
The moratorium will extend the 
loan tenure
• Due to the moratorium, the loan closure date/ period 
will extend which is useless. A deferment of two EMIs 
could extend your loan by 6 to 10 months. If you have 
long term loans like a home loan, your tenure could 
increase significantly. As a result, they will have to pay a 
higher interest during the loan period if they opt for a 
loan moratorium facility. 
• If you have liquidity enough to pay the EMIs, you must 
continue with the loan repayments as before.
Interest will increase
• The biggest drawback of the moratorium is that the interest payable on the loan will increase. For 
example, if you opt for a 3-month moratorium, then interest rates for these 3 months will be 
added on to further 3 months of your total EMI period with more interest. Suppose you have availed 
a home loan of Rs. 50 lakh at 8.5% p.a. interest rate for 20 years, and you opt for the 3-month 
moratorium. Then the present 3 months interest will be added to the remaining 20-year EMI period, 
which means you will have to pay extra interest for 3 months which you opted as a moratorium. 
The total cost of missing 3 EMIs of Rs. 43,391 each will jump to Rs. 4.48 lakh. However, the impact 
will not be that big for individuals who have completed 10 years of the loan tenure.
• RBI has instructed banks to give this benefit to their customers, but it totally depends on banks how 
they surpass the benefit to their term loan customers. Some banks are extending the moratorium 
facility if customers sought for it. During the moratorium period, your credit score will not be 
impacted even if you skip the EMIs.  
• While the deferral will provide some relief, the cost will add up in the coming years. Financial 
experts suggest that if you are capable of paying the EMI during the moratorium period, don’t avoid 
the payment. Only those who are facing liquidity issues or who are expected to be adversely 
affected in terms of cash flows should avail the loan moratorium.
Thanking You……….
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n-the-long-run
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