What is a Moratorium Period? A comprehensive overview

On assessing the key facts about a loan, you may find yourself wondering, ‘What is a moratorium period?’. Simply put, it is a facility for managing your repayment during tough times. It comes into play when you are unable to pay your EMIs and it can offer some respite. Here, you don’t have to pay EMIs for a set period and there will be no penalty as well. 

After this period ends, you must repay your loan in EMIs as planned in the lending contract. Lenders allow you to opt for it at different stages of your repayment tenure, under certain circumstances and as per their policy. 

As such, simply having an answer to the question, ‘What is a moratorium period?’, isn’t enough. You also need to know how it works and its pros and cons to make a well-informed decision. 

How Does a Moratorium Period Work?

When the lender approves your request for a moratorium, they will halt your EMI payments. However, interest will still be levied and added to your total outstanding amount. Once the period ends, your lender will give you a new schedule as your outstanding amount will change.

Because of this, your EMI or repayment period or both will also change. Depending upon the agreed plan, the lender will either: 

• Increase your EMI or tenure 
• Increase both to compensate for the missed payments 

Who Can Get a Moratorium Period?

The approval of the request depends entirely on the lender. It is usually offered to individuals who are going through financial hardship and cannot pay their instalments. 

However, RBI may declare a mandatory moratorium under certain circumstances, such as:

• Economic distress, such as during the Covid-19 pandemic, all citizens with outstanding loans got a moratorium period
• During natural disasters, war, or terrorist attacks, affected individuals become eligible for a moratorium period 

How do Lenders Calculate Interest During the Moratorium Period?

Lenders generally use the simple interest calculation to adjust interest. Additionally, they will charge interest only on the outstanding amount during the period and not the entire loan amount. 

You can use a calculator to estimate your interest and your new EMI or tenure after the period ends. To use this tool, you will need the following details:

• Loan amount 
• Interest rate
• Repayment period
• Number of EMIs paid
• Moratorium period

Once you enter these details, you can check the impact of this option. You may also get the option to choose whether you want the EMIs or tenure to be the same. Based on the results, you can compare and choose the most feasible option.

Advantages and Disadvantages of the Moratorium Period in a Loan

Here are some benefits you can enjoy by opting for a moratorium period in a personal loan or any other loan:

• Relieves repayment burden for a few months
• Helps manage your finances smartly during any crisis
• Negates the impact of defaults on your credit score
• Avoids penalties, which can add to your financial burden

In addition to these advantages, here are some drawbacks that you may have to face

• Your loan repayment tenure may increase, affecting long-term goals
• Your interest outgo can increase significantly
• After the period ends, you may have to pay higher EMIs

Armed with this information about the provision and its pros and cons, decide if this option is worth it. One way to minimise the burden of repayment is to avail a loan on affordable terms. The Fibe Instant Cash Loan is one such option and you can get up to ₹5 lakhs at affordable rates. 

Moreover, you enjoy flexible tenures and zero foreclosure charges, allowing you to have a comfortable experience. Download our Personal Loan App or apply on our website to get started!

FAQs on the Moratorium Period 

How is interest calculated during the moratorium period?

Lenders compute interest during this period using the simple interest formula. This interest is levied on the outstanding amount for the period and not the entire principal amount. This amount is then added to the payable amount, increasing the number of EMIs or the EMI amount. 

What is the moratorium period for personal loans?

It is the period during which you don’t have to pay instalments and its length depends on the agreement between the lender and the borrower. 

How much will the EMI increase after the moratorium?

It depends on how long the moratorium period was and the interest applied during it. 

Can I pay EMI during the moratorium period?

No, you don’t have to pay any EMIs during a moratorium period on personal loan or any other loan.