All Indian banks have extended a 3-month moratorium on term loans to ease customers' financial burden.
On the face of it, it appears that delaying EMIs for 3 months simply means your outstanding loan tenure will extend by another 3 months, right? Wrong.
In reality, even if you opt for the deferral in EMIs, banks will continue to charge interest on the total outstanding loan, which will prove costly for customers and in some cases like home loans, the tenure gets extended much more than 3 months. The impact will be severe on credit card customers as interest is calculated on a daily basis once the due date lapses.
This harsh truth is confirmed by none other than SBI. For instance, if you defer EMIs for a home loan of Rs 30 lakhs with a remaining maturity of 15 years, the net additional interest would be approximately Rs 2.34 lakhs. It means, deferring payments for 3 months will extend your loan tenure by eight months unless of course you pre-close it earlier.
That's why, SBI like all other banks is advising customers to repay loans if they are in a position to honor their loan obligations.
However, some banks are informing customers that the extension of loan tenure will be equivalent to the number of months they opt for EMI deferrals.
According to HDFC Bank, it won't ask for any EMI Payment until May, 31 from customers, and the loan tenure will get extended by the corresponding period for which the moratorium has been availed. "For example, if customer has paid the EMI for the month of Mar’2020 and has opted for moratorium for April & May’2020, then the loan tenure will get extended by 2 months," it said.
But here's the catch. HDFC clearly mentions that interest will continue to accrue on the principal outstanding for the period of the moratorium at the contracted rate of the loan. It means, customers have to shell out higher EMIs with added interest when routine payments begin, which then keeps extended the loan tenure to 2 or 3 months as per the customer's option.
Which is why, HDFC in its missive to customers is offering an unsolicited advise to continue paying if they have adequate funds to avoid extra interest charges and tenure extension. "Such interest will be collected by extending the original tenor of the loan accordingly," it added.
The costs get even more expensive for credit card dues and loans taken on credit cards, simply because of the steep interest rates.
Credit card interest is what's charged when you don’t pay your dues. It works as a daily rate calculated by dividing your annual percentage rate by 365, and then multiplying your current balance by the daily rate.
"Kindly note, that the EMI moratorium is a deferment of payment and not a waiver of interest. Customer is required to pay the minimum amount due or total outstanding along with accrued interest charges on the due date after 31st May 2020," HDFC added.