Loan moratorium: When interest compounding works against you

Over the last 3 months, for many, salaries have been truncated, jobs have been lost and the health and lives of near and dear ones have been threatened. And for most, this is a first-time experience.

 

In support, the salaried middle-income person has also been given some breaks, importantly, an initially three, now extended to six months “moratorium” on their loans through banks/NBFCs. These include all kinds of loans, including credit card debt.

 

The terms of the moratorium are simple – it only defers your EMI, doesn’t waive it. There is no interest waiver. Non-payment (ie. deferral) does not impact your credit score.

 

Hence, it is advisable to pay your EMIs, and not take the moratorium, unless there are dire circumstances, because of which you are unable to pay. And if you do, pay back the deferred EMIs as soon as possible, to minimize the long-term impact.

 

But why so? The reason is simple. Taking a 6-month moratorium on a home loan that has 15 years left adds another 18 EMIs! And this is because of the effect of compounding over long periods of time.



Our latest article, published on Moneycontrol, explains exactly why. Click on the below link to read on.

 

https://www.moneycontrol.com/news/business/personal-finance/loan-moratorium-when-interest-compounding-works-against-you-5461361.html




Image credit: Moneycontrol

 

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