A Moratorium Period refers to the span of time during a loan’s duration when the borrower is not required to make any repayments. Essentially, it is a waiting period before the commencement of repayment via EMIs. Typically, repayment starts after the loan is disbursed, with payments expected to be made each month thereafter.
In simpler terms, a moratorium is a law or agreement that grants individuals additional time to pay their debts. often arise in response to crises that disrupt normal routines. For instance, following an earthquake, flood, drought, or disease outbreak, a government or central bank may impose an emergency moratorium on certain financial activities. This moratorium is lifted once the situation stabilizes and the financial crisis is resolved.
Benefits of Paying a Loan During the Moratorium Period:
If an individual has the liquidity, it is advisable to avoid opting for a moratorium. This is because interest continues to accumulate on the loan amount even during the moratorium period. By repaying during this period, one can reduce the overall interest cost. Additionally, an EMI holiday or moratorium period at the start of a home loan provides borrowers with ample time to plan their finances.
Benefits of the Moratorium Period in Education Loans:
For education loans, the moratorium period allows time for the student to complete their course and begin generating income. This period often extends beyond the course term to account for the possibility that the borrower may not immediately secure a job or start earning income after graduation.
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