In many cases, it is necessary for a person to take a loan for personal or professional needs, like buying a house, getting education, etc. However, it is not always possible for a person to start paying the EMIs immediately after getting the loan. That is where the concept of moratorium period in loan comes into play. Understanding the concept of moratorium period in loan is very important, as it will help a person manage their finances better and avoid any stress. In this blog, we will explain what is moratorium period in loan, benefits, rules, and how it is different from the grace period, so that you can make better decisions while taking a loan.
What Is Moratorium Period in Loan?
The Moratorium Period is a specific time period after which a loan has been sanctioned and during which time the borrower is not required to pay any EMIs. In short, it is a standstill on the EMIs. This is to give breathing space to the borrower, especially during times when he or she may not be able to earn after taking up the loan or to earn and generate cash flow.
The ‘Loan Moratorium Meaning’ is quite simple. The Moratorium Period is essentially a standstill on EMIs, and during this time, the borrower is allowed to defer paying EMIs without any penalties.
Key Features of Moratorium Period:
- It usually starts from the date of loan disbursal.
- EMIs are deferred for the agreed duration.
- Interest may or may not accrue, depending on whether it’s a simple interest or compound interest loan.
- It is often offered on home loans, education loans, and sometimes personal loans during emergencies.
Types of Loans That Offer Moratorium Period
| Loan Type | Moratorium Duration | Interest During Moratorium |
| Education Loan | Course duration + 6–12 months after graduation | Interest may accrue and get added to principal |
| Home Loan | 6–12 months (sometimes up to 24 months in special schemes) | Interest accrues depending on lender rules |
| Personal Loan | Usually short-term during specific relief schemes | Interest may accrue unless waived |
Benefits of Moratorium Period
- Financial Flexibility: The initial financial obligations can be managed without worrying about repayment at that time.
- Cash Flow Management: It is useful for planning a budget appropriately. The individuals who can use this are new graduates, business owners, or employed people whose income is variable.
- Reduced Stress: It provides psychological comfort during unexpected situations like job loss, illness, or emergency situations.
- Loan Planning: Enables borrowers to align EMI start with their financial capability.
How Moratorium Period Affects EMIs
Although there is an option for deferred payments under the moratorium, it is necessary to comprehend how it will affect repayment:
- Interest Accrual: In general, interest continues to be added on the outstanding amount. This means that after the moratorium, there might be an increase in EMI amounts, since interest has been added on the outstanding amount.
- Total Repayment Amount: Because of interest, it is possible that the total amount paid over the loan tenure could be more than initially planned.
- Credit Score Impact: There is no impact on your credit score if you choose to take up a moratorium.
Example Table: Moratorium Impact on EMI
| Loan Amount | Interest Rate | Tenure | Moratorium | EMI During Moratorium | EMI After Moratorium | Total Interest Paid |
| ₹10,00,000 | 8% p.a. | 10 years | 12 months | ₹0 | ₹12,500 | ₹5,00,000 |
| ₹5,00,000 | 10% p.a. | 5 years | 6 months | ₹0 | ₹10,800 | ₹1,90,000 |
Note: Figures are illustrative and may vary by lender.
Moratorium Period vs Grace Period
While moratorium period vs grace period may seem similar, they serve different purposes:
| Feature | Moratorium Period | Grace Period |
| When It Starts | From loan disbursal | After EMI due date in a repayment cycle |
| EMI Payment | Deferred for full period | Payment can be made after due date without penalty |
| Interest Accrual | Usually continues | Usually accrues normally |
| Purpose | Financial relief at the start of loan | Short-term flexibility for delayed payment |
In short, a grace period is a short buffer after EMI is due, while a moratorium is a longer structured break from repayment.
Rules and Guidelines for Moratorium Period in India
The Reserve Bank of India has set specific guidelines for the loan moratorium period, especially during emergency situations like the COVID-19 pandemic:
- Eligibility: These are generally applicable for all borrowers of specific types of loans, like personal, home, and education loans.
- Duration: The duration of the moratorium period is decided by the lenders, usually for a period of 6-12 months.
- Interest: The lenders clearly state whether the interest is accrued during the moratorium period and whether there are any waivers.
- Voluntary Option: It is up to the borrowers whether they wish to opt for the moratorium period or pay the regular EMIs.
- Transparency:The banks and NBFCs are obligated to clearly state the impact of the moratorium period and the accrued interest.
Practical Tips for Borrowers
- Plan Ahead: Before deciding, you should have an understanding of your cash flow situation and assess if availing the moratorium option is beneficial in your case.
- Check Interest Accrual: Before availing the moratorium, it is recommended that you check with your lender if any interest is being levied on your loan during the moratorium period.
- Use Wisely: While availing moratorium, you should use it only in case of an emergency and not as an alternative to loan repayment.
- Track EMIs: It is recommended that you keep track of your deferred installments so that there is no confusion when you start making payments after the moratorium period.
- Consult Tools: Websites like Olyv can be useful in making your EMI calculation after availing moratorium.
Key Takeaways
- The moratorium period of a loan is a temporary relief from the payment of installments.
- It is unlike the grace period, which is a small cushion after the due date of EMI.
- The interest is usually paid during the moratorium period, and hence the amount is increased.
- The moratorium period is useful for managing cash, emergency, and flexibility.
- The borrower should be aware of the guidelines set by RBI and banks.
Final Thoughts
It is important to understand what is moratorium period in loan and how it is used. The moratorium period is a structured break from paying your loan on time. This provides you with some breathing space to manage your finances during the initial stages of your loan or during times of emergency. Although this provides you with more flexibility in your loan, you should be aware that you are paying interest on your loan. By understanding the various offers on moratorium and understanding the loan moratorium meaning along with the difference between moratorium period vs grace period, you can make better financial decisions. Various online platforms provide tools that can help you calculate your EMIs and stay financially prepared to avoid any surprises.
