How will a 6 months Moratorium Impact your future Cash Flows?

हमारे YOUTUBE चैनल को सब्सक्राइब करें !

As we wrote earlier in this article, the RBI has extended the 3 months moratorium on loan EMIs for another 3 months ie till August 31st. As a borrower, it is important to understand how your future cash flows will get impacted by opting for a 6 months moratorium.

If you opt for a 6 months moratorium, you won’t have to pay EMIs till August 2020; however, interest on the outstanding principal amount will continue accruing during the period of the moratorium. At the end of the 6 months, the interest for 6 months would be added to the outstanding principal amount. Banks are expected to provide any of the following 3 options to borrowers for payment of the 6 months accrued interest:

1) Pay the full accrued interest as a one-time payment at the end of the moratorium period;

2) Increase the amount of EMIs to be paid for the rest of the loan tenure – increased EMI amount will account for the extra accrued interest 

3) Pay the same amount of EMI for a longer tenure – the increased loan tenure will account for the extra accrued interest

Let us take the following example:

Suppose you have taken a loan of Rs 20 lakh to buy a truck, with tenure of 5 years paying 9.5% per annum as interest rate. You pay an EMI of Rs 42,004

In the table below, we will analyze the impact due to the 3 different options:

If 5 years (60 months) of your truck loan is left:

Under Option 1, you have to make one-time payment of accrued interest of Rs.95000 at the end of the 6 months. Total Cost over lifetime: Rs.95000

Under Option 2, you have to pay extra amount of Rs.1995 per month (new EMI of Rs.43999) for the next 60 months. Total Cost over lifetime: Rs.1,19,700

Under Option 3, you have to pay EMI for 4 extra months. Total Cost over lifetime: Rs.1,68,016 

If 3 years (36 months) of your truck loan is left:

Under Option 1, you have to make one-time payment of accrued interest of Rs.62285 at the end of the 6 months. Total Cost over lifetime: Rs.62285

Under Option 2, you have to pay extra amount of Rs.1995 per month (new EMI of Rs.43999) for the next 36 months. Total Cost over lifetime: Rs.71820

Under Option 3, you have to pay EMI for 2 extra months. Total Cost over lifetime: Rs.84008

If 2 years (24 months) of your truck loan is left:

Under Option 1, you have to make one-time payment of accrued interest of Rs.43454 at the end of the 6 months. Total Cost over lifetime: Rs.43454

Under Option 2, you have to pay extra amount of Rs.1995 per month (new EMI of Rs.43999) for the next 24 months. Total Cost over lifetime: Rs.47880

Under Option 3, you have to pay EMI for 1 extra month. Total Cost over lifetime: Rs.42004

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