Paying Loan EMIs After Job Loss: Should You Opt For Moratorium? Check Pros And Cons

A loan moratorium is a temporary suspension of equated monthly instalments (EMIs) usually granted by banks when a borrower is in financial crisis. It can be sought by an existing customer of a bank in the event of a job loss, major illness, or similar unforeseen events. It provides short-term relief by deferring payments, though interest continues to accrue during the moratorium period.

Unlike a waiver, the dues are not cancelled, but just delayed. This can ease immediate pressure, but may lead to longer loan tenure or higher EMIs later. A loan moratorium is likely to increase your overall debt burden due to additional interest charges.

Banks and NBFCs generally don’t offer an automatic loan EMI moratorium. However, borrowers facing temporary financial difficulty can approach their lenders to request a loan restructuring or an EMI deferment. It’s important to note that such requests are approved only on a case-by-case basis.

Your loan account must be in good standing, usually not overdue by more than 90 days. A request for a loan moratorium is now scrutinised carefully and approved only in cases that show genuine financial distress. This reflects a more cautious approach by lenders. As such, it is important for borrowers to engage with their banks proactively and transparently before missing any repayments.

Start by contacting your bank or financial institution and explaining your situation clearly, asking for a temporary halt in EMI payments. Depending on the cause, such as a medical emergency or job loss, you may need to submit documents like hospital bills, salary slips, or a termination letter.

Ask your lender if there are any moratorium options available. Carefully read and understand the terms and conditions, including whether interest will continue to be charged and how the pause will affect your repayment schedule.

You can also try to negotiate the terms by requesting an extension of the loan tenure or a revision in EMI amount. It’s also important to check with your lender about how the loan EMI moratorium will affect your credit score.

Once your request is processed and approved, your lender will give you the updated repayment details and let you know when your EMIs will start again.

Advantages:

·         A moratorium provides temporary relief during financial emergencies by allowing borrowers to pause loan repayments.

·         No penalties are imposed by the bank during the moratorium period, even if EMIs are not paid.

·         As this is a relief measure, banks will not classify borrowers as defaulters during the moratorium period.

Disadvantages:

·         Interest continues to accrue during the moratorium period. This could result in higher EMIs or increased loan tenure.

·         For large loans like home loans, the overall repayment period may extend, leading to a larger interest outgo.

·         In some cases, credit card usage may be restricted during the moratorium period.

If you’re facing income disruption due to salary cuts or business closure amid the lockdown, a moratorium can provide immediate financial relief. However, if you're in a position to continue repayments, it is advisable to do so to avoid the extra interest burden later. For borrowers with multiple loans, assess which loan could be more impacted by the moratorium.  

If you are in the early stages of a home loan, it is wiser to keep paying EMIs. Since the initial EMIs mostly comprise interest, deferring payments at this stage may significantly increase your total interest payout. 

A loan moratorium can offer short-term relief, but it is not a waiver. Borrowers must weigh the immediate advantages against the long-term financial implications. It is wise to consult with your lender and fully understand the repayment terms before opting for a loan moratorium.