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A moratorium period refers to a particular period of a loan tenure during which the borrower does not have repay anything. It can be described as a waiting period before the borrower will have to start paying the equated monthly installments (EMIs) for his or her loan. Usually, when one applies for a loan, he or she will be required to pay the EMIs from day one until the last day of the loan tenure. However, when one has a moratorium period, he or she will not have to repay any amount to the lender. Even though you are not paying anything during this period, you will still earn an interest income. It will get accrued in your personal loan account.
A moratorium period is mostly given for education loans. With the help of this period, the loan applicant who is the student in this case, will not have to repay anything during the moratorium period. Once the student completes his or her course and secures a job after graduation, he or she can repay the amount conveniently. The moratorium period is set by the lender and the applicant will need to adhere to it.
A moratorium period is also sometimes known as an EMI holiday since you do not have to pay any EMI during this period. It is given to student loan applicants as well as salaried loan applicants.
Many people prefer to choose an education loan over a personal loan due to the existence of a moratorium period, when they need financial assistance to pay course fees for an academic programme in the country or in any foreign country. When you apply for a personal loan, you will not get the benefits of a moratorium period. You will be required to repay the loan from the beginning, and this is difficult for someone who is studying in a college or a university. He or she can start making the payments only after they start earning.
The main purpose of a moratorium period is to make sure that the loan applicant is financially ready to start repaying the loan.
During a moratorium period, your lender will compute your loan’s interest by applying the concept of simple interest. The interest will be computed only on the amount that is actually offered and not on the entire loan quantum. The interest that is charged on the loan during the moratorium period will get ensued and then added along with the principal amount of the loan. Hence, after your EMI holiday is over, you will need to start paying your EMIs, which will include the interest accumulated over the moratorium period and the principal amount.Can I Pay my Interest Amount During the Moratorium Period? In case you are financially prepared to pay your loan EMIs during your moratorium period itself, you may be able to enjoy concessional interest rates. Hence, if you manage to fix your financial crisis, then it makes good sense to clear your loan during the moratorium period. This holds true, especially because during your moratorium period, the interest will be low. As the months pass, your interest will increase and you will be forced to pay a very high amount after your ‘repayment holiday’.
In India, very few loans are offered with a moratorium period by the lender. The two main loan options that offer a moratorium period include education loans and home loans. In order to understand why only these loans are provided with the benefits of moratorium period, let us try to understand how these two loans work.
An education loan refers to a loan that is taken by a person in order to handle his or her education expenses. It is mostly taken to finance higher education courses such as graduation, post graduation, doctoral studies, research studies, etc. Since a student or a student's parent or guardian applies for this loan, the student wouldn't have income at that point to repay the loan. Hence, once the student finishes the course and then starts earning money from his or her job, the loan can be repaid. This gap in the loan tenure during which the borrower does not have to pay anything is known as the moratorium period. It is a very important element of an education loan. An education loan can be taken for education within the nation or outside the country.
A moratorium period is a great feature that is offered by lenders to borrowers as it helps them sort out their financial difficulties and then start repaying the loan with a fresh start. Before you apply for a loan, you can check with your banker about all the terms and conditions regarding the moratorium period and then take a decision accordingly. Make sure you are aware of all the conditions associated with your repayment holiday so that it is a smooth process. When you are clear about the aspects associated with it, your moratorium period as well as the remaining period of your loan tenure will be effective and comfortable.