Loan Moratorium: Meaning, Features & Eligibility

Decoding loan moratorium meaning and its many advantages

Key Takeaways

A loan moratorium is a temporary suspension of loan repayment.
It allows you to plan your finances better.
It offers you some respite from your financial hardships.
A loan moratorium is not a waiver but a postponement of the EMI.
You must check with your lender if you are eligible for a loan moratorium.

The novel coronavirus pandemic dealt a severe blow to the common man's finances. In March 2020, the Reserve Bank of India (RBI) announced its first Loan Moratorium as a relief measure on loan EMI repayment for individuals and small businesses against the pandemic-induced lockdown. The apex bank then extended the moratorium again in August 2020 and May 2021; the latter with the Supreme court's intervention. With moratorium becoming the most popular finance buzzword in the aftermath of the covid-19 pandemic, we thought we thought it apt to write about it. Let us understand what is moratorium period and loan moratorium meaning in this article.

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What is a Moratorium Period?

A moratorium period can be defined as a period of time before or during an ongoing loan, during which your lender does not expect you to pay your loan EMIs. It is essentially a break or waiting period before you resume repaying your EMIs. Typically, you have to pay EMIs in the first month after your loan is sanctioned. However, the moratorium period allows you to pay EMIs after some time.

You may get this moratorium depending on the type of loan you opt for, and based on the bank’s and/or the central government’s policies.

What is Loan Moratorium?

A loan moratorium is a temporary suspension of loan repayment. It is a period wherein you are entitled to get a break on your loan repayment. You can stop paying the Equated Monthly Instalments or loan EMIs for a specific tenure during a moratorium. The moratorium tenure depends upon the type of loan you are repaying and differs from lender to lender.

Bear in mind this loan moratorium is not a waiver but a deferment of loan EMIs. This means that the repayment tenure and maturity of the loan will extend by the number of months you avail of the moratorium facility.

Who is Eligible for a Loan Moratorium?

Having explained loan moratorium meaning, let us learn who is eligible for this facility. Banks generally offer moratoriums on products like Home Loans, Personal Loans, Education Loans and Credit Card dues.

The term moratorium is widely used in the context of education loans, where students can start repaying EMIs, after completing their course and finding employment. Education loan applicants are usually provided with a loan moratorium of 6 months to 1 year after completing their degree. They can start repaying loan EMIs after the moratorium period ends.

Besides Student Loans, you can avail of an EMI holiday on Home Loans. Since the loan amount is usually on the higher side, you can avail moratorium to settle these loans.

What are the Benefits of Loan Moratorium?

The moratorium allows you to plan your finances better.
It offers you some respite from tight liquidity conditions.
Availing moratorium will not affect your credit score; instead, it saves you from becoming a defaulter.

Things to Consider about Loan Moratorium

Loan EMIs will be deferred and not waived
The interest will continue to accrue on the outstanding amount.
Your loan tenure is bound to increase.
For a moratorium on Home Loans, the lender may increase the interest rate once the loan resumes.

Final Note

Now that you know Loan moratorium meaning, you can consider utilising this facility if needed. While availing of a moratorium can help ease your financial hardships, you should only opt for it if necessary. If your bank has set a moratorium as the default option for your loan, and you do not wish to avail of it, you can visit their website and fill a form to opt out of the scheme.

Download the digibank mobile app on your smartphone. Launch the app and click on the "Get Personal Loan" link on the login page. Also, you can open bank account online with us.

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*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.