What is the Moratorium Period?

Posted on Thursday, February 20th, 2025 | By IndusInd Bank

If you are facing a cash crunch and want financial support instantly, a personal loan can be the right choice for you. When applying for a personal loan, you may come across the term ‘moratorium period’. So, what is the moratorium period?

It refers to a specific duration during which the borrower is not required to make repayments on the principal or interest. 

The moratorium period acts as a financial cushion by giving borrowers time to stabilise their finances before they can start the repayment. If you are planning to take a personal loan soon, knowing about the moratorium period is important. 

Understanding the Moratorium Period in Detail

• The moratorium period can be considered as a repayment holiday provided by lenders at the start of a loan. 

• During this time, the borrower is exempt from paying EMIs (Equated Monthly Instalments). 

• However, interest often accrues during this period, and it is added to the loan amount, making the overall repayment higher.

• Borrowers should note that a moratorium period does not mean loan forgiveness. Instead, it defers payments on a temporary basis to help borrowers adjust to new financial obligations.

• Moratorium periods are common for home loans, education loans, and sometimes personal loans.

• The moratorium period can range from a few weeks to a couple of months, depending on the loan. Some banks may offer a moratorium extension as well if their policies permit. 

Example:

Imagine taking a personal loan of ₹10 lakhs with a 6-month moratorium period. While you will not be making payments for six months, once this period ends, you must start paying EMIs every month. 

If you want to get an idea of what your EMIs will look like after the moratorium period ends, you can use a personal loan EMI calculator. It gives you an estimate of what your overall repayment amount, so you can prepare for it even during the moratorium period.

Why Do Banks Provide a Moratorium Period to Borrowers?

Now that you know the meaning of the moratorium period, let’s see why banks provide such a benefit to their customers:

1. Support During Financial Transitions

After taking a loan, borrowers may need time to adjust their finances. They may have taken the loan to start a business, finish their education, or recover from a setback. A moratorium period gives them a break from repayments and allows them to manage their finances without added pressure.

2. Attract Borrowers

Having a well-defined moratorium period makes loans more appealing, especially for first-time borrowers or those with tight financial situations. It adds flexibility and makes the loan more accessible to a broader audience.

3. Reduce Default Risks

When borrowers are given a repayment holiday, they can better prepare for future payments. This reduces the likelihood of defaults and ensures smoother loan management for both borrowers and lenders.

4. Economic Relief During Crises

Moratorium extensions can be a common feature during events like pandemics or economic downturns. They allow borrowers to deal with a lack of adequate financial resources with dignity. For example, during the COVID-19 crisis, many banks were asked to provide extended moratoriums. This helped borrowers deal with financial difficulties without the stress of instant repayments.

While many know what a moratorium period is, some still confuse it with a ‘grace period’. 

Moratorium Period vs Grace Period

While both terms represent features within a loan, one differs from the other in major aspects:

a. Moratorium Period

A moratorium period has the following features:

• Offers temporary relief from repayments.
• Interest usually accrues during this time.
• Offered at the start of loan tenure.
• Common in long-term loans like home loans.

b. Grace Period

A grace period can be understood from the following features:

• It is the time allowed for late payments without a penalty.
• No interest or penalties for delayed payments.
• Applies to payments after EMI due dates.
• Applies across various loans as well as credit cards.

Example:

If you take an education loan, the lender may offer a 12-month moratorium period after graduation, during which you do not need to pay EMIs. In contrast, a credit card bill may include a 10-day grace period after the due date. You can make payments without penalties within this grace period.

Also Read: Reduce Your Financial Burden with Longer-Term Personal Loans

Conclusion

Knowing the meaning of the moratorium period is important, as it allows you to plan your repayment well. Whether you have taken a personal loan for education purposes, home renovation plans, or to take care of a medical emergency, the moratorium period is a feature that aims to help you get settled before you can start making repayments. 

For flexible repayment terms and competitive interest rates on your personal loan, look no further than IndusInd Bank. With us, you can apply online with a 100% digital application procedure and benefit from minimal documentation, instant approval, quick disbursal, and more. Take the next step towards your new financial journey with IndusInd Bank now! 

Apply Now

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.