What is Moratorium Period: Meaning & how to apply in India

When you take a loan, you usually repay it through monthly EMIs (Equated Monthly Instalments). But what if you face unexpected financial difficulties and worry about paying your EMI on time?. You cannot miss an EMI payment because it will lead to penalties due to a lower credit score. In this situation, you can go for a moratorium period.

A moratorium period is a time during which you stop paying EMIs partially or fully. It depends on your loan type, like education loans, home loans, and in certain situations, personal loans. When you understand the moratorium period, you can simply plan your finances better and know how interest is being charged during that break. 

Key takeaways 
 

• Moratorium period is a time in which you don't have to make payment of any EMI which you do.
   
• A moratorium period is provided if there is any emergency or financial difficulty. 
   
• Interest may continue to accrue on the outstanding loan amount.
   
• Education loans commonly include moratoriums, and some business loans do as well.
   
• The moratorium period is for those who want to postpone EMI for some time.
   
• You should understand the impact of a moratorium on the overall loan tenure and interest payable.

What is the Moratorium Period in India?

I am not jumping into technical terms directly. Let me make you understand how the moratorium period works with an example of Kartik. 

Last year Kartik took a home loan of ₹30,00,000 and his monthly EMI was ₹26,500 per month. Since his new house was still under construction, the bank gave him a 12-month moratorium period. That means he did not have to pay the regular EMI. After the moratorium ended, his ₹26,500 monthly EMI started. 

So, in the above example, you saw that Kartik stopped paying EMI during the moratorium period. It works exactly like this. 

A moratorium period is a temporary period during which a borrower is allowed to postpone EMI payments without the loan being treated as a default. 

Moratorium Period Meaning in Personal Loan

Now you understand the concept of a moratorium period. The moratorium period for personal loans is the same. When you get a loan and want to pause EMI payments for some time. That is a moratorium-period loan. 

What are different types of Loan Moratorium? 

Although a moratorium is just a temporary pause for your EMI payment, there are different types of it based on why and when it is granted. Want to know about its types? Let's go ahead. 

Product-Specific Moratorium

The first one is a product-specific moratorium; you can also call it built-in because it is already included in the loan agreement when you take the loan. You do not need to request it separately.

For example, when you apply for education, you usually get a moratorium during the course period and for 6 to 12 months after completing the course or until you get a job.

The second example is about home loans. When people apply for a home loan for a construction property. Some lenders offer a moratorium until the house is ready for possession. 

In these loans, you don't have to apply for a moratorium period separately. 

Emergency Moratorium

This is different from building during the moratorium period. When you are regularly paying EMI every month but suddenly face financial problems, that time you can go for an emergency moratorium. You can use an emergency moratorium in situations like sudden job loss, severe medical emergencies, salary delays, or major business revenue disruptions. 

The emergency moratorium period is usually from 1 to 3 months for personal retail loans, and sometimes up to 6 months for MSMEs or corporate clients. 

Central Bank-mandated moratorium 

This moratorium is implemented by the Central Bank and the RBI. When problems like global pandemics, severe economic recessions, or widespread natural disasters arise, this moratorium is used. 

For example, in 2020, a 6-month loan moratorium was permitted by the RBI due to COVID-19. 

Apart from all the above moratoriums, there are two types of it: full moratorium and partial moratorium. In a full moratorium, you do not pay either the principal or the interest during the moratorium period. This interest is added to the outstanding amount. And in a partial moratorium, you pay only the interest. 

How to apply for a loan moratorium in India?

Now you know what the moratorium period is and its types. Do you want to know how to apply for it if ever needed?. If yes, then follow these steps. 

1. The first step is to check eligibility and bank policies at the bank where you are applying. You can get this information from a website, app, or Grievance Redressal for Financial Hardship.
 

2. The second thing is to gather all necessary documents. 
 

3. In India, banks like SBI, HDFC, ICICI, and Axis prefer online applications via their portal. Or you can simply write a formal letter to the branch manager.
 

4. Once the bank approves your loan moratorium, you will receive an official approval email or letter. 
 

5. After that, you should check with the bank to make sure your Auto-Debit (NACH/ECS) for EMI payments has been paused.

These were the steps to apply for the moratorium period. That was the general process. But if you need more detailed information, you have to visit a related bank portal. 

Things to remember:

You can follow the above steps and apply for a loan moratorium. But there are some important things that you should always remember. 

The first one is that the moratorium period does not stop interest from being charged. Even during the moratorium period, the bank continues to calculate interest on your outstanding loan amount. And the second one is that if the loan moratorium is officially approved by the bank, it will not affect your CIBIL. So, always get written approval from the bank before stopping payment of EMI. 

Documents required for loan moratorium 

If you have any ideas about loan moratorium applications, it's time to know about the documents. You need the following documents while applying for a moratorium period. 
 

• Application Form / Hardship Letter
   
• PAN and Aadhaar card for KYC application.
   
• Loan sanction letter, loan account number, and outstanding statement.
   
• Updated passbook with at least 6 months' salary account.
   
• Last 3 months' salary slip.
   
• Form 16 / ITR

If you are a businessman:
 

• Current Business Bank Account Statements (Last 6 months)
   
• GST Returns (GSTR-1 and GSTR-3B for the last 2 quarters)
   
• Audited Balance Sheet & Profit & Loss (P&L) Statements
   
• Business Income Tax Returns (ITR) (Last 1 to 2 assessment years)
   
• Signed Business Disruption Self-Declaration

If you are applying due to a medical emergency, always submit a hospital Discharge Summary and doctor certificate. 

What are the benefits of the moratorium period? 

Now you know everything about the moratorium period, but do you know about its benefits? Why is it used? Is it beneficial to only one party or both?. Let's understand. 
 

1. If you lose your job or face any other financial difficulties, a loan moratorium gives you relief. 
    
2. If you do not pay EMI regularly, it directly affects your credit score, but the moratorium period protects your credit score.
    
3. It gives you time until your income improves.
    
4. For lenders, moratorium periods are used to build customer trust and satisfaction.
    
5. Also, recovering the loan over a longer period is often better than pursuing costly legal action or writing off the loan. That's why it is beneficial for Lenders too. 

The main purpose of the moratorium period is to give borrowers time to stabilize their finances without immediately defaulting on the loan. And it is not only beneficial for borrowers, but it affects lenders too in a positive way. 

What are the moratorium limitations? 

Just like every other thing, loan moratoriums also have both positive and negative sides. Here are its limitations:

1. The first drawback of a loan moratorium is that interest continues to accrue. This automatically increases the total cost of the loan.
    
2. Another drawback is that lenders extend the repayment period after the moratorium ends. That means it may take months or even years longer to become debt-free.
    
3. Most importantly, a loan moratorium is not offered automatically and for each loan. You have to apply separately for it.
    
4. It is only a temporary relief, not loan forgiveness. Means no matter today or tomorrow, you have to pay the money back.
    
5. It can also badly affect your future financial planning because you have to pay extra money and it takes a lot of time. 

Example: How a Moratorium Period Works

Let me tell you a story of my cousin Sushmita. She wanted to study for an MBA; she comes from a humble family, so her family could not afford the college fees. So, she took an education loan of ₹8,00,000 from SBI Bank.

SBI charged 10% interest and offered a moratorium period of 2 years. During these 2 years, Sushmita did not have to pay any EMI because she was studying and did not have a job.

After completing her MBA, she got a job with a monthly salary of ₹55,000.

Once the 2-year moratorium period ended, the bank started her loan repayment. She began paying the EMI every month until the loan was fully repaid.

The moratorium period gave Sushmita enough time to complete her education, find a job, and start earning before beginning her loan repayments. 

But interest was allowed to accumulate during the moratorium; the outstanding loan became approximately ₹9,68,000 after 2 years. That means the moratorium period also increased the total amount she had to repay. That's how a loan moratorium works.

Tips Before Choosing a Loan Moratorium

Now you are aware of both positive and negative sides of a loan moratorium. So, before going for it, keep the following things in mind. 
 

1. Always check if interest will continue to accrue.
    
2. Calculate the total repayment amount.
    
3. You should use a moratorium only when necessary.
    
4. You have to understand the lender's terms and conditions.
    
5. Ask your bank how repayment will change.
    
6. Keep supporting documents ready.

Other than that, always remember that a loan moratorium should be considered a temporary financial relief, not a way to reduce your loan. 

Conclusion 

Let's go back to Kartik for a moment. The moratorium period gave him enough time to construct his house before he began repaying his loan. But the interest continued to accrue during that time, the temporary relief helped him avoid financial stress.

This is exactly how a moratorium period works. It gives borrowers temporary relief from EMI payments during financial hardship or special situations such as education, home construction, or emergencies. Since interest usually continues to accumulate, the total cost of the loan may increase.

If you are considering a home loan moratorium, personal loan moratorium, or any other loan moratorium, make sure you understand the lender's terms, interest calculation, and repayment schedule before applying. A moratorium period should be used only when it is genuinely needed, as it provides temporary relief but does not reduce or waive your loan liability.

FAQs

What is the 12-month moratorium period?

A 12-month moratorium period lets you postpone EMI payments for one year. Interest usually continues to accumulate during this period.

Is a moratorium period good or bad?

The moratorium period has both positive and negative sides. Moratoriums are helpful during financial difficulties, but it increases total interest, making the loan more expensive over time.

What is a moratorium period?

Moratorium period is a time in which you don't have to make payment of any EMI which you do.

Can I pay EMI during the moratorium period?

Yes, you can continue paying EMIs during the moratorium period if you want to reduce interest and repay the loan faster.

Is my student loan wiped after 30 years?

Actually, ly it depends on your country's loan rules. Some student loans may be written off after a specific repayment period.

What are the disadvantages of a moratorium?

The drawback of a loan moratorium is that interest continues to accrue. This automatically increases the total cost of the loan.

Is 700 a bad CIBIL score?

No, a CIBIL score of 700 is generally considered fair, but a score above 750 improves loan approval chances.

Can I lose my house if I miss one payment?

Missing one home loan EMI usually won't cause foreclosure, but repeated missed payments can put your home at risk.

Can I pause my student loan payments?

Yes, some lenders allow temporary student loan payment pauses through a moratorium.