Before Opting for Personal Loan Covid19 Moratorium Consider These Factors
When Prime Minister Narendra Modi announced the nation-wide lockdown for a period of 3 weeks to contol the spread of the Novel Coronavirus Covid-19, the entire nation went into a frenzy. While the government has directed all employers to pay their employees full-salary for the period, but how well are the guidelines implemented on ground-level is yet to be seen. Moreover, the fear that the lockdown may be extended further if the spread of the coronavirus is not under control has left many individuals confused about their finances. The real economic impact of such a drastic move cannot be forcasted as yet. The IMF has already indicated that the global economies are heading towards recession.
|No Home Loan, Personal Loan, Corporate Loan EMIs for three Months|
Now how do you manage your Personal Loan EMIs amid Covid19 Lockdown?
In order to dispel the uncertainty regarding the financial impact of the lockdown, first, the finance minister and then the RBI announced various measures that have been put in place. One such announcement that holds a lot of significance for Personal Loan borrowers is the mortarium period of three months. After hearing this announcement, many Personal Loan borrowers thought that now they need not worry about their EMIs for three months. But is it really the case? Let’s analyze the impact of this announcement and find out how you should plan your Personal Loan EMIs during the Coronavirus lockdown.
Do you really need not pay anything for three months?
While many borrowers heaved a sigh of relief when the government gave instructions to the financial institutions to consider the EMI mortarium and pass on repayment break to the borrowers. Though, there are some key aspects of the announcement that you must know before you start celebrating this announcement:
- It is voluntary: The lenders have been “advised” by the government to consider giving 3-month mortarium on the EMIs. This implies that the lenders are not under obligation to pass-on this benefit. Thus it is a bank-specific decision. They may decide to pass on the benefits to all customers or to “select” ones.
- You have to ask for it: If your EMIs are set for auto-debit, then it will hit your account on the due date, and if there is sufficient balance in the account, the EMI will be debited. So, make sure that you check with your lender and ask for the benefit of the mortarium period.
- Interest will accrue: While you will need not pay the EMI for the period of three months, the interest will continue to accrue on the outstanding balance. Once this mortarium period is over, you will be expected to pay the accrued interest by the lender. So, unless and until you really can not afford to pay the EMI, opting for this mortarium period might pinch you a bit financially and push your interest costs.
|RBI’s Covid 19 Relief Policy Review: Should You Opt for Moratorium on Loan(s) EMIs & Credit Card Bills?|
Factors to consider before opting for Loan Holiday
Now that you understand the real impact of the EMI mortarium announced by the government in the wake of the Coronavirus Lockdown, it is time for you to plan your personal loan EMIs.
Here are some useful tips that will help you in this quest:
- Cost vs. benefit analysis:
First and foremost, you need to analyze the impact of the increased interest cost if you opt for the mortarium period of three months. This can be easily done by using a Personal Loan EMI Calculator available online. It will help you understand the exact additional interest you will have to bear. Moreover, then try and understand the benefits that you can obtain from deferring the EMI payments for three months and if it is worth at all. Once you have conducted this cost vs. benefit analysis, you can decide your way ahead.
- Revisit your investments: Due to the panic caused by the lockdown, the financial markets and mutual funds have taken a big hit. Sensex has fallen by over 40% in the last few weeks. So, use this spare time at your home to revisit your investments and rebalance your investment portfolio. You can decide to liquidate some investments that are not offering adequate returns to generate additional funds that can go towards EMI payments.
As the impact of the coronavirus pandemic will be felt for several months to come, realignment of your investments could be a wise decision.
- Manage your expenses: As you are forced to sit at home anyways, and all the markets and non-essential commercial establishments are closed, you would be saving some money due to reduced expenses. This is another opportunity for you, as the money that you are saving on your expenses can instead be used to pay your Personal Loan EMIs.
- Do not use your Credit Card: Avoid undertaking any unnecessary expenses during this period. Moreover, as most e-commerce establishments are now dealing with essential products only, it is time to put your Credit Card away for the time being. Do not purchase your groceries or medicines using the Credit Card as you will otherwise be paying significantly higher interest costs. Use your savings judiciously and manage to live within your means. By saving on your Credit Card Bills and Interest cost, you can generate additional funds for your EMIs.
- Create new revenue streams: Most companies have offered work from home opportunities to their employees. This presents a unique opportunity for you as you will now be able to save a lot of time which would otherwise be wasted in traveling. Put your spare time to productive use and take-up some freelance work, if possible. This way, you can generate additional funds without much effort and thus repay your personal loan EMIs on time.
- You must pay if you can: Last but not least, you must check how much money you have in your Savings Account. Keep aside the sum necessary for your expenses for a period of six months. The remaining money should be used to pay your EMIs and Credit Card bills. In a nutshell, you must pay your EMIs as per the original schedule if you can. Do not opt for the mortarium period just because it is available.
The COVID19 Lockdown is an extraordinary circumstance, and thus it is imperative for you to tread cautiously. Analyze your financials accurately and only then take a call regarding the option of deferring the Personal Loan EMIs for three months.
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