What are The Benefits of Moratorium Period?

Last year, seeking relief from COVID-19 induced distress, RBI had asked banks and NBFCs to provide a loan moratorium to borrowers for repayment of term loans. During this period, borrowers could opt to pause their EMIs to be paid to the lenders. This facility was made available on car loans, home loans, personal loans, and credit card dues.However, you don't have to wait for the RBI announcement to get a moratorium. You can approach your lender if you think you need one.But first, let’s understand what this is in detail.

EMI holiday period or moratorium period is a specified duration given by the lender when you are not required to pay your loan EMIs. So, you can plan your finances better and start paying your EMIs after a break. Credit cards and all sorts of retail loans, including home loan , vehicle loan, and others, are eligible for the moratorium. However, bear in mind that the loan moratorium does not mean the waiver or cancellation of the interest. The borrowed amount will keep incurring interest during the moratorium period.

• It reduces your financial stress and gives you a breathing space to plan your finances better.
• You can use the moratorium period to plan your monthly income and expenditure to repay your EMIs.
• During this period, you can save funds for subsequent EMIs or pay for other expenses.
• You can also use this time to switch your job or try out a new adventure that requires immediate funding.
• The best benefit of the moratorium is that it doesn't impact your credit score negatively.
• Taking the moratorium during the start of your loan, such as a home loan, can help you prepare for the EMIs better.

While there are a few lenders that offer ample grace period before you start off with the loan repayment, it is advisable to do your research in advance.Compare interest rates charged by the lenders- for some may charge a higher interest rate to make up for the EMI holiday period, especially when the loan has been sanctioned on floating interest rates. Speak to your lender regarding the loan repayment procedure, interest charges, and other requirements to ensure hassle-free EMI payments even post the moratorium period.

If you are facing a liquidity crisis, then opting for a moratorium period can be beneficial for you in many ways while relieving you from financial distress. However, check your lender's terms and conditions in advance before you make a move so that you can make the best of this grace period.

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.