Whether I should pay my EMI or avail moratorium?

Vaibhav Shah
Vaibhav Shah

RBI recently announced a deferment option to financial institutions for 3months to fight the challenges arising due to the pandemic (Covid 19). This announcement is beneficial for borrowers facing any cashflow mismatch to service their loans. While the step sounds beneficial for many borrowers, the details need to be understood before going ahead.

So let us understand the details:

Are my EMIs getting waived off?
There is a difference between waiver and deferment. In this case, RBI has allowed deferment of EMIs by the financial institutions. Deferment in simple terms means that you don’t need to pay your loans for 3 months and the tenure will be extended by the same period. Also, banks have the right (NOT AN OBLIGATION) to allow moratorium of 3 months. Thus banks have an option to not allow moratorium. It applies to all term loans which include home loans, personal loans, educational loans, credit cards, etc. HOWEVER (why you need to evaluate whether you should avail?), the interest will continue to accrue on the outstanding.

Interest will continue to accrue at what rate?
The interest rate on deferred payment will mostly continue at the same rate as that of the ongoing loan interest rate. This means that deferring a housing loan will attract an interest rate of 8-10% while for a credit card the interest rate applicable will be ~24% to 36%

How the accrued interest will be recovered?
The lending institution will have a policy in place for the recovery of deferred payments. Either the accrued interest will be recovered as a bullet payment or the same will be spread across the loan tenure which will effectively increase the loan EMIs in the future.

Should I avail of this option?
As this is a cash flow relief and not an interest relief, we advise every borrower to evaluate their ongoing cashflows. In case there is an ability to service the EMIs, it is better to pay the dues rather than increase the burden by way of accrued interest. In terms of credit cards, it is very important that all the dues are paid instead of deferring, as credit card deferment will attract an interest rate of 24-36%.

How would I know whether my bank is extending this option?
It is important first to check with your respective bank on whether the option is available and at what terms. SBI has announced that it will extend this option to all its customers.

In case I defer my EMIs, will this affect my credit score?
RBI has provided that any borrower who avails this option will not be treated as a default and hence there will be no adverse effect on the credit score of the borrower. Thus in case you wish to avail this option, your credit score will remain unaffected


The loan deferment is a welcome move for the borrower who are facing any cashflow mismatch on account of the recent outbreak of Covid-19. However, for those who have an ability to service the loans, should continue paying their dues.

Vaibhav Shah
Vaibhav Shah

Vaibhav has a strong work experience with the likes of Edelweiss Financial Services and L&T Limited. He is a Chartered Accountant (All India Rank: 36) and Chartered Financial Analyst (CFA Institute, USA) and working as a VP Research at Orowealth.

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