What is a Moratorium? - How does Moratorium Work?


While in the case of normal loans, borrowers need to start repaying after the principal amount is given, there are some loans in which this is not the case, such as education loans. In education loans, students start repayments after they get a job.
How does Moratorium Work?

Sometimes, a moratorium is made by banks in response to circumstances that disrupt the normal banking routine. The current economic climate created by the coronavirus pandemic has prompted many banks to adopt the moratorium system. This is done to reduce the pressure on existing and future borrowers till a certain time limit.

What is Moratorium Interest?

To get the moratorium facility on your personal loans or other loans, you need to pay an interest. It is called a Moratorium interest. It depends on one bank to another, but basically it is charged at the original loan rate for the time remaining for repayment of outstanding EMIs.

Is Interest Paid during the Moratorium Period?

Interest on the loan is not paid during this time. Think of it as an “interest-holiday” time. There’s no need to pay anything at this time. Rather, it is the best time to strengthen your savings and finances. Thus, once the moratorium period is over, you can be ready to repay it.

Moratorium Period for Business Loans

Moratorium periods can be found not just with educational loans, but also in mortgages and in some business loans. Here’s an example of a moratorium period for a business loan.
Let’s say that a company, who is a customer of a bank, is facing financial problems at the moment. It is unable to repay EMIs currently. It approaches the bank and asks for more time till they can make their financial situation strong. The bank, who only wants its money back with interest, agrees to give the moratorium period.

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