When it comes to loans—whether it’s a home loan, personal loan, or educational loan—you confuse the term moratorium period. But what does it mean, and how does it affect your loan repayments? Let’s understand in detail.
The moratorium period is a temporary break from paying your loan EMIs. During this time, set by the lender, you don’t have to make any repayments. However, the interest on the loan keeps adding up unless the lender has made a different arrangement.
This period helps borrowers by giving them time to get their finances in order before they start regular payments.
A moratorium period can be particularly helpful in certain situations, such as:
Starting a New Job: People taking education loans benefit from a moratorium, as they may not have a stable income until after graduation.
Economic or Health Crisis: During unforeseen circumstances, like the COVID-19 pandemic, moratoriums provide relief when people may face financial difficulties.
Starting a Business: Business loans sometimes offer moratoriums, allowing entrepreneurs to focus on setting up their business before they start repayment.
Imagine you take a ₹5 lakh education loan at 10% interest. After completing your education, you receive a six-month or 12 months moratorium period before you start paying your EMIs. During this period, interest accumulates on the principal amount, so when you start repayment, the interest during the moratorium will be added to the total loan amount.
Different loans offer moratorium periods, each has a unique purpose for the borrower. Here’s a look at the main types of loans that offer moratorium periods:
Education Loans: Education loans have a moratorium period until six months to a year after course completion.
Home Loans: Some home loans offer a moratorium, usually during the construction phase of the property.
Personal Loans: In specific cases, personal loans may have a moratorium, especially if tied to certain crises or economic relief.
Business Loans: Loans for startups or new businesses may come with a moratorium to help entrepreneurs get the business running before repaying.
Not all loans come with an automatic moratorium. Here’s a quick guide to who may be eligible:
Students: Benefit from moratoriums on education loans, as they may not have income until after completing their studies.
Homebuyers with Under-Construction Property: May receive a moratorium on home loans while their property is still under construction.
Individuals Facing Financial Crises: In situations like the COVID-19 pandemic, the RBI directed banks to provide a temporary moratorium on EMIs to individuals facing financial hardship.
New Business Owners: Entrepreneurs starting a new business qualify for a moratorium on business loans.
Note: Eligibility for a moratorium depends on the loan type, lender’s policy, and the borrower’s specific circumstances.
The moratorium period offers a break from EMI payments, but it affects your loan amount in the long run. Here’s how:
Interest Accumulation: Interest keeps adding up on the main loan amount during the moratorium. So, when it ends, you might owe more than what you originally borrowed because of this extra interest.
Increased Total Repayment Amount: Because of the added interest, your total repayment could be higher than you planned. This means your EMI might be larger, or you could end up paying for a longer time.
Potential Increase in Loan Tenure: If you don’t want to pay a higher EMI, the loan period might be extended to cover the unpaid interest that built up during the moratorium.
Let’s say you took a ₹10 lakh loan at a 10% annual interest rate with a six-month moratorium period. At the end of six months, an additional ₹50,000 (approximate interest for six months) would be added to your loan amount. So, instead of ₹10 lakh, you would now owe ₹10.5 lakh, increasing your overall cost. (The interest rate is might not applicable in every loans)
| Loan Type | Usual Moratorium Period | Who Benefits Most | Additional Interest Applies? |
|---|---|---|---|
| Education Loan | Course duration + 6-12 months after completion | Students with no immediate income | It depends on the lender |
| Home Loan | Until construction completion | Homebuyers of under-construction properties | Yes |
| Personal Loan | Usually during financial crises | Individuals facing temporary hardships | Yes |
| Business Loan | Initial phase of business | Entrepreneurs needing time to establish | Yes |
The moratorium period can be a helpful way to ease financial stress, especially during tough times. It gives borrowers time to get their finances back on track before starting regular EMI payments. However, it’s important to remember that while it offers some relief, it also means you will have added interest, which raises the total loan cost.
Understanding how a moratorium works and how it affects your loan repayment will help you make a smart decision.
No, the moratorium period is not interest-free. Interest continues to accumulate on the principal amount during this time.
Eligibility depends on the type of loan, the lender’s policies, and sometimes special circumstances like a health or economic crisis.
After the moratorium, you may either have a higher EMI or an extended loan tenure to cover the additional interest accrued.
Yes, if you wish to make partial payments or clear the interest, it can reduce the impact on your total repayment. Contact your lender to check for this option.
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