What is the Moratorium Period?
A moratorium period means a period of time during a loan tenure when the borrower is not needed to make any payments. It is a period of time before EMI repayment resumes. Typically, repayment starts after the loan amounts are transferred, and the borrower must make payments every month. Moreover, due to the moratorium period, payment does not begin for some time.
The banks provide this feature on education loans and home loans. This is because students repay education loans once they begin earning a living. There may be a time between the completion of their studies and the beginning of their employment. It is for this reason that a moratorium period has been established.
How Does a Moratorium Work?
A moratorium is generally required in response to a crisis that disrupts usual business operations. As the result of natural disasters such as earthquakes, floods, droughts, or disease outbreaks, a government or the central bank may impose an emergency moratorium on certain financial transactions. When the situation is expected, the ban is lifted.
Moratorium Period Meaning
What is the Moratorium Period in Education Loan?
The moratorium period is known as the interval when a borrower is exempt from repaying the loan. This repayment break is mostly available for education loans, home/housing loan. During this time span, the borrower is not required to make any payments to the banks.
This is a feature that banks offer on student loans. Student loans are repaid after they start earning a living. Once they complete their studies, they may wait a while before starting work. There has been a moratorium in the period because of this very reason.
The term moratorium refers to a period when a borrower is excused from repayment. This repayment holiday is for student loans. During this period, the borrower owes no money to the banks. The RBI has mandated that every government bank’s education loan schemes include a moratorium or grace period on loan repayment.
An education loan, like other types of loans, has an interest rate. This interest starts accruing the first month after the loan is approved. However, government banks must grant education loan borrowers a repayment break. Students don’t need to pay interest during the moratorium period. Remember that during the moratorium period, interest is not waived but simply postponed.
When students begin repaying their loans, they will pay the accrued interest. While the terms and conditions vary by financial period, most grant a one-year moratorium following program completion.
Benefits of Moratorium Period
A moratorium period is essentially a period during which you are exempt from paying your loan EMIs. That means you do not have to begin repaying your loan as soon as it is disbursed to you. Instead, you can take advantage of an EMI holiday and resume paying EMIs after a break.
It relieves your financial worries and allows you to better plan your finances. You can plan your monthly income and expenses to repay your EMIs during the moratorium period. During this time frame, you can save money for future EMIs or pay other bills.
How Can I Opt for The RBI Moratorium?
All banks, NBFC, IHFC and other financial institutions provides loan moratorium period regarding of covid-19, governed by Reserve bank of India. If your bank has advised you to submit a request to take advantage of the moratorium offer, you can go to its website or click on the link provided by your bank and fill out a form to enroll in the scheme.
You can also make this application in person at the bank. If your bank has made moratorium the default option for the type of loan you have chosen to take, and you do not want to participate in the scheme, you must go to the bank’s website and fill out a form to opt-out.
Is This a Waiver of EMIs in Any Way?
That is not a waiver but rather a delay of EMIs. The payback duration and due dates are extended by three months after the moratorium period has expired.
What is the Moratorium Period in a Home Loan?
A moratorium period in the term of home loans is a period of home during which borrowers are not required to repay any loan. Thus, the moratorium means that this period is waiting before the customer begins repaying EMIs at the agreed-upon home loan interest rate.
In most cases, customers must start repaying EMIs from the first day they receive the home loan amount until the final day of the tenor. When there is a house loan moratorium period, the customer is not required to pay anything to the lender during this time.
Even though you do not pay anything during this period, interest income will be achieved and credited to your account. The meaning of the moratorium period should be clear by now. This is commonly used for education and home loans. This is sometimes referred to as an EMI holiday. This is useful for those who have determined their eligibility using the home loan eligibility calculator and the amount they can afford to repay using the home loan EMI calculator.
This period allows you to plan ahead of time before beginning to repay the home loan. This time also allows you to organize your finances. In the case of education loans, the student will complete the course and find work after graduating, after which the loan repayment will begin.