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- Key Highlights
- What is Moratorium Period?
- Who Can Avail Moratorium Period in Personal Loan?
- How to Calculate Interest on Loan During the Moratorium Period?
- What is Moratorium Period on Loans as Per the Reserve Bank of India?
- Loan Interest Payment During the Moratorium Period
- What are the Benefits of Moratorium Period in Personal Loan?
- What are the Drawbacks of Moratorium Period?
- Key Takeaways
- FAQS - FREQUENTLY ASKED QUESTIONS
Key Highlights
- Discover what is moratorium period and how it helps borrowers manage their finances.
- Learn how to reduce overall financial burden during a moratorium period in personal loan.
- Find out how to calculate interest of loan during a moratorium period.
When learning about different loans, you may have come across the term 'moratorium period'. But what is moratorium period?A moratorium period is also known as the ‘waiting period’ before a borrower starts to pay the equated monthly instalments (EMIs) of their loan. The moratorium period in India entails earning the interest income even when the principal amount is not being repaid.If you are still wondering what is a moratorium period, here is all you need to know.
What is Moratorium Period?
A moratorium period refers to a specific duration in a loan tenure when a borrower is not required to repay any amount, either principal or interest, to the lender.
Who Can Avail Moratorium Period in Personal Loan?
A moratorium period in personal loan is usually given for education loans. The applicant or the student can begin repaying the loan amount after completing their educational degree and securing a job.The moratorium period in India is set by the lender and you must adhere to it. Also referred to as an EMI holiday, the objective of a moratorium period is to ensure that you, as the applicant, are financially ready to start repaying your loan.
How to Calculate Interest on Loan During the Moratorium Period?
During the moratorium period, simple interest is calculated on the principal amount that is outstanding in that given period of time, and not on the entire loan. The interest that is charged on the loan during the moratorium period gets accrued and added to the principal amount of the loan.So, after the EMI holiday ends, you'll will have to start paying EMIs, which will include the interest accumulated over the moratorium period and the principal amount. Also Read: Can You Take A Personal Loan For Business?
What is Moratorium Period on Loans as Per the Reserve Bank of India?
As per the Reserve Bank of India (RBI), commercial banks and Non-Banking Financial Companies (NBFCs) can offer a six-month moratorium period on personal loans, home loans, term loans, and education loans, for the payment of EMIs.This is applicable for all cooperative banks, rural banks, regional banks, and NBFCs which include housing finance companies.
Loan Interest Payment During the Moratorium Period
You can pay your outstanding interest amount on the loan taken during the moratorium period if you are financially prepared to do so. You can also pay your EMIs during the moratorium period itself.You'll also be entitled to concessional interest rates during the moratorium period in personal loan, the interest will be relatively low. Do remember that with time, the outstanding interest will keep increasing and you may end up paying a higher amount of interest post your EMI holiday.
What are the Benefits of Moratorium Period in Personal Loan?
- Provide assistance during financial crisis. A moratorium period in personal loan can help you during a financial crisis by providing some relief from immediate loan repayments. this is especially helpful during personal health emergencies or national crisis like a pandemic.
- Great option for those taking student loans. Moratorium period in personal loan is also a real advantage for students who can only start earning after completing their studies.
However, a moratorium period on your EMIs must be taken only when you're sure about being able to repay the principal and interest in a timely manner. Failure to do so can add more financial burden.Know How to Calculate EMI Using Personal Loan EMI Calculator
What are the Drawbacks of Moratorium Period?
Some of the drawbacks of moratorium period include:
- No waivers. One of the primary drawbacks of opting for a moratorium period on your personal loan is there are no waivers. The repayment amount keeps getting deferred in case of a delay in repayment but is not waived off.
- Continuous interest payment. As the borrower, you'll have to continue paying interest to the bank or lender for a longer time. This may lead to additional interest charges and increased payment amount, affecting your financial goals.In fact, longer periods of EMI breaks lead to longer loan tenures.
Hence, it is important to understand a moratorium period carefully before applying for a loan.
Key Takeaways
What is the moratorium period advantage primarily? A moratorium period in personal loan can be really helpful for borrowers during a cash crunch situation and help them in crisis management. However, a moratorium period on your EMIs must be taken only when you're sure about your repayment capability.
FAQS - FREQUENTLY ASKED QUESTIONS
Which financial institutions in India offer EMI moratorium?
moratorium period in India can be offered on your loan by any commercial bank, regional bank, and small finance banks. It is also offered by non-banking financial companies (NBFCs).
What is moratorium period impact on credit score?
The moratorium period does not affect your credit score as long as you pay your EMIs on time.
What is moratorium period interest and principal amount?
The moratorium period accounts for both the interest and principal component of your EMI.
What is moratorium period eligibility?
As per the announcement made by the Reserve Bank of India on 27th March 2020, all individual borrowers are eligible to opt for loan moratorium on EMI whose loan was outstanding as on 1 March 2020. However, you must check with your lender for the latest updates.
What is moratorium period prime benefit?
Opting for a loan moratorium can help you plan your repayment schedule and enables you to plan your monthly expenditures accordingly.
What is moratorium period interest calculation on my loan?
During a moratorium period, simple interest is calculated on the principal amount that is outstanding in that given period of time, and not on the entire loan.
Is it advisable to opt for moratorium period in personal loan?
It is advisable to opt for moratorium period on your personal loan EMI only if you are sure about being able to repay the loan in a timely manner.
What is moratorium period - EMI holiday?
EMI holiday is the moratorium period on a loan. It refers to the time period in a loan tenure wherein the borrower does not repay any amount to the lender. It is also known as the ‘waiting period’ before the borrower starts to pay the EMIs of the loan.
What is moratorium period drawback?
The primary drawback of opting for a moratorium period in personal loan is that the repayment amount keeps getting deferred in case of a delay in repayment but is not waived off.
What is moratorium period in personal loan?
To find out what is moratorium period in personal loan, you should know it is usually given for education loans where the loan applicant is not required to repay anything during the said time period. The moratorium period in personal loan is set by the lender and you must adhere to it.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
