Should I opt for EMI Moratorium or withdraw from my PF during Corona ?

While announcing the lock down to prevent spread of Corona, Government of India also announced few relief package. 2 major announcement were allowing EMI moratorium for the period of 3 months and also allowing non refundable PF advance withdrawal. Before you take call to opt for the same, it is recommended that you look at your personal finance situation before taking these call.

Managing personal finance during Corona lock down:

There is no “one size fits all” solution when it comes to managing personal finance and the same depends on ones current finance situation. You should consider below questions to assess your current situation before you plan strategy to manage your personal finance.

  1. How much loss of income you are projecting during lockdown? Is it partial loss due to delay in salary or pay cut or complete loss due to job cut?
  2. Do you already have emergency fund to manage current situation?
  3. Do you have any EMI or committed expenses like rent?
  4. How much is your monthly expenses on essentials during lockdown period?

Answer to above four questions will give you fair idea about how better will you meet your financial needs during the lockdown period. Once you assess the financial situation correctly, taking below decisions will become easy:

Should I opt for EMI moratorium during lockdown period?

Remember that EMI moratorium does not mean that your EMI will be waved off. It only means your EMI will get postpone by 3 months. Further, you will be charged interest during this moratorium period which will get added to your future repayment schedule after moratorium period ends. So, if you are not expecting any loss of income or if you are well covered with your emergency fund to sustain till your income gets normalize, you should not opt for the moratorium.

On the other hand, if you find it difficult to meet your finance need during lock down period due to loss or reduction in income and do not have emergency fund available, you should opt for moratorium on your loan. This moratorium facility will give you 2 benefit : (1) you will be able to manage your cash flow and divert cash towards essential requirement in the time of crises. (2) Your credit score will not have any negative impact by not paying EMI during moratorium period. Remember, If you choose not to pay EMI, you must get your moratorium request approved from your bank.

How do I manage other monthly committed expenses like rent ?

In the time of crises like we are currently living, many people are finding it difficult to meet pre committed or fixed expenses. Before you take any decision on such expenses, it is better to initiate communication with person to whom you need to pay. Do not default on any expenses without communicating. You can initiate discussion about delaying or waiving off expanses like rent. While doing this, remember that the other person are also going through the same crisis situation you are in. So mutual decision can be taken depending on financial situation of both. Arriving on win-win formula like partial payment or delay payment after mutually agreeing with each other will help you win long term trust and relationships.

Should I withdraw from my provident fund ?

Government has allowed withdrawing up to 75% of the PF corpus balance or 3 months of wages whichever is lower during current difficult time. Be very cautious before touching this retirement fund.

According to WHO, average life expectancy in India is around 69 years. If you are maintaining healthy lifestyle, the same is expected to further go up by around a decade. Retirement age is about 58 to 60 years in the country. This means we are expected to live more than a decade or two after retirement. Do not withdraw from your provident fund or pension plan to meet current needs. This corpus is going to help you in your post retirement life when your salary income will become zero and on the other hand medical expanses might see an increase. So withdrawing from PF should be your very last resource to arrange fund in current time only if you do not find any other source of fund and finding it difficult to manage your essential needs. Till the time you are able to manage without PF fund, it is advisable not to touch this retirement kitty.

Hope with above tips you will be able to take informed decision. Click here to read more on managing personal finance with reduced income during Corona. Finally, these are certainly challenging times which require us to be conservative and think long term. We will surely come out of this soon.

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