Moratorium vs EMI: What to Choose When You Lose Your Job?

Moratorium vs EMI:
Losing a job can be a difficult and stressful experience, especially when you have financial commitments like loan EMIs. In such situations, many people wonder whether they should continue paying their EMIs or opt for a moratorium. Here’s a simple explanation of both options.

Moratorium vs EMI:

What is a Moratorium?

A moratorium is a temporary relief provided by banks or Non-Banking Financial Companies (NBFCs) during financial crises, such as losing a job or facing serious health issues. However, it’s important to understand that a moratorium doesn’t mean loan forgiveness. It only postpones your EMI payments for a certain period. During this period, you’re not required to pay your EMIs, but interest will still accrue on your loan, meaning your total loan amount may increase over time.

How to Apply for a Moratorium?

If you decide to go for a moratorium, you need to contact the bank where you have your loan. Explain your situation, such as job loss or financial difficulty, and submit necessary documents like termination letters or medical bills. Ask about the duration of the moratorium and how interest will be calculated during this period.

Benefits of a Moratorium

Temporary relief: It reduces the immediate financial burden.
No penalty: You will not be labeled a defaulter.
No additional fees: The bank won’t charge extra for taking the moratorium.

Drawbacks of a Moratorium

Increased total debt: The interest continues to accrue, which can increase your loan repayment amount.
Credit impact: In some cases, your credit card usage may be limited.
Loan term extension: The loan duration may increase, or future EMIs could be higher.

Should You Opt for a Moratorium?

If you’re facing a temporary financial crisis, like job loss, a moratorium can provide you with some breathing space. However, if you can continue making EMI payments, it’s better to pay as usual. This way, you can avoid the extra interest burden that comes with the moratorium option.

Ultimately, whether to choose a moratorium or continue paying EMIs depends on your current financial situation and future income prospects.

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