A moratorium period is a temporary relief period during which borrowers don’t need to make Equated Monthly Installment (EMI) payments on their loan. It is also known as a ‘loan holiday.’ Generally, lenders offer the benefit at the beginning of the loan tenure or during financial hardships. The purpose of a moratorium period is to give you extra time to manage your finances without being considered in default.
During this period, while you don’t pay EMIs, interest continues to accrue on the outstanding loan amount. Once the moratorium ends, regular EMI payments resume, and the accumulated interest is added to the total repayment amount. This feature is particularly helpful for students, salaried individuals facing temporary loss of income, or businesses affected by unforeseen events.
Let’s understand what a moratorium period is in a loan with the help of an example. During the COVID-19 pandemic in India, the Reserve Bank of India (RBI) allowed banks to offer a six-month moratorium on term loans. As a result, borrowers weren’t expected to pay EMIs for 6 months. This initiative provided financial relief to many borrowers struggling with cash flow issues.
How does the moratorium period work?
After you’ve understood the moratorium’s meaning, you must learn how it works. This is vital to help you reap maximum benefits and make informed financial decisions.
Application and eligibility
A moratorium period isn’t offered voluntarily by lenders. You must apply for it if you are facing financial struggles and are unable to temporarily pay EMI. Lenders study your financial situation, loan type, and their internal policies before approving your request. In some cases, you may have to submit proof of the financial challenges arising in your life, such as medical reports, job loss letters, or business loss statements.
Suspension of EMIs
The lender allows you to pause EMI payments for a fixed period. For example, you need not pay EMI for 3 or 6 months. During this period, you are not marked as in default.
Interest keeps accruing
Even though you’re not paying EMIs, interest is charged on the outstanding principal each month. This accrued interest is either added to the principal, which increases the EMI in the future, or paid in one large payment later, depending on the lender’s policy.
The following simple calculations will help you understand how a moratorium period affects your loan repayment.
Suppose you secured a personal loan of Rs. 5 lakhs for a period of 5 years at an interest rate of 12% per annum.
Monthly interest rate = 12% / 12 = 1% or 0.01
Monthly interest = Rs. 5,00,000 x 0.01 = Rs. 5,000
Interest accrued over a 6-month moratorium period = Rs. 5,000 x 6 = Rs. 30,000
If the lender adds this interest to the principal, the new principal = Rs. 5,00,000 + Rs. 30,000 = Rs. 5,30,000
Now, let’s estimate how the EMI changes with the new principal. The formula for calculating EMI is:
EMI = P × r × (1+r)n / ((1+r)n − 1)
where,
P = principal amount
r = rate of interest
n = loan tenure
Original EMI = Rs. 11,122 (approx.); Total loan repayment over 60 months = Rs. 6,67,333
New EMI = Rs. 11,789 (approx.); Total loan repayment over 60 months = Rs. 7,07,373
The difference between the total loan repayment over 60 months is Rs. 40,040. This amount increased during the moratorium when no EMI was paid and interest accrued.
Resuming EMIs
When the moratorium ends, you either pay a higher EMI, continue the same EMI with a longer tenure, or pay a lump sum interest. It depends on the lender’s policy. Make sure you get the post-moratorium amortization schedule in writing from the lender.
Key benefits of a moratorium period
A moratorium period offers you temporary relief by allowing you to postpone EMI payments without being treated as defaulters. It provides financial flexibility during emergencies but also comes with certain drawbacks. Below are moratorium period’s pros and cons.
Immediate financial relief
A moratorium lets you stop making EMI payments and focus on essential expenses during situations like job loss, salary cuts, or medical emergencies.
Flexibility during unstable income
A moratorium is beneficial for individuals who do not have a steady income source. This includes freelancers and small business owners. It lets you stabilize your income before resuming regular repayments.
Protection from defaults and credit score damage
Even though EMIs are paused, you are not marked as defaulters during the moratorium period. Your credit score remains unaffected, provided the moratorium is officially approved by the lender.
Customized relief options
Many Indian lenders offer moratoriums for 3 to 6 months, allowing you to choose according to your personal circumstances. This personalized approach prevents unnecessary financial burden.
Drawbacks to watch out for
You must keep in mind the following drawbacks of a moratorium period.
Accumulation of interest
During the moratorium, you are not paying EMIs, but the interest continues to accrue. This means the overall loan cost rises.
Extended loan tenure or higher EMIs
Once the moratorium ends, you may face either a longer repayment period or higher EMIs, depending on how the lender adjusts the repayment schedule.
For example, during the COVID-19 pandemic (2020), the RBI’s six-month moratorium allowed Indian borrowers, like salaried individuals in metros or small traders, to skip EMIs temporarily. While it provided crucial relief during lockdowns, many paid extra interest later, highlighting the need to balance short-term relief with long-term cost awareness.
Types of loans where a moratorium applies
A moratorium period in India is commonly offered across different types of loans to give you temporary payment relief during financial strain or the initial phase of the loan. Below are the major types of loans with a moratorium.
Education loans
Education loans mostly include a moratorium, covering the student’s course duration plus an additional 6 to 12 months after graduation. This gives you time to find a job before EMIs begin. The interest accrues during this period, but repayment starts only after the moratorium ends.
Home loans
Banks and housing finance companies may offer a moratorium of 3 to 6 months, especially for under-construction properties or during crises like the COVID-19 pandemic. You can apply for a moratorium through your lender’s online or offline portal, ensuring you are not marked as defaulters.
Personal loans
For unsecured loans like personal loans, moratoriums are usually short-term, 1 to 3 months. They are approved in exceptional cases, such as salary delays or medical emergencies.
Business or MSME loans
Small businesses facing cash flow disruptions can apply for a moratorium of up to 6 months. The RBI has periodically instructed banks to extend this relief during economic slowdowns or natural calamities.
If you’re thinking about how to apply for a moratorium, you need to submit a written or online request to your lender, explaining the reason for seeking the moratorium. The approval depends on eligibility, repayment history, and the lender’s internal policy.
How to calculate the moratorium period on a loan?
The moratorium period is the time between the loan disbursement date and the first EMI due date. Calculating it and the interest accrued during it requires two steps: determine the moratorium length, then compute accrued interest (if any).
Step 1: Determine moratorium length
Start by identifying the disbursement date (D) and the first EMI due date (E). Moratorium months refer to the number of full months between D and E. If E falls on the same calendar day in a later month, count whole months. Alternatively, you can count partial months pro-rated by days as per lender policy.
Step 2: Compute accrued interest during moratorium
The formula for accrued interest is:
I = P x r x m
where,
I = accrued interest
P = principal outstanding at disbursement
m = moratorium months
r = monthly interest rate (annual interest rate / 12)
Let’s look at the moratorium period calculation with the help of an example. Suppose a loan of Rs. 4 lakh was disbursed into your account on January 15, 2020. The annual rate of interest was 13%, making it a monthly rate of 1.08%.
The first EMI was due on April 15, 2020, making the moratorium (m) for 3 months. The monthly interest during this period was Rs. 4,333 (4,00,000 x 1.08%).
So,
Accrued interest = 4,333 x 3 = Rs. 13,000 (approx.)
If this interest is capitalized, the new principal becomes Rs. 4,13,000.
Please note, if there are partial months, lenders pro-rate interest or use daily-rate calculations (I = P x (annual rate) x (days/365). Do check the lender’s policy to understand the exact computation and capitalization.
The RBI introduced a loan moratorium to provide financial relief during the COVID-19 pandemic from March 2020 to August 2020. The provisions of the RBI’s loan moratorium are:
Eligibility
The relief was available for all term loans, credit card dues, agricultural loans, retail loans, and working capital facilities outstanding as of March 1, 2020. Both individual and business borrowers were eligible, provided their accounts were standard with no overdue accounts for more than 90 days before the moratorium period.
Duration
Initially announced for three months, starting March 2020, the moratorium was later extended by another three months from June 2020 to August 2020. You could choose to opt in for the entire six months or a shorter duration, depending on your needs.
Applicability
The scheme applies to all lending institutions regulated by the RBI, including public and private sector banks, NBFCs, housing finance companies, and microfinance institutions.
Interest accrual
During the moratorium, interest continued to accrue on the outstanding principal. The unpaid EMIs were deferred, not waived, and you either faced a longer repayment tenure or higher EMIs afterward.
Opt-in process
You need to submit a request to your respective banks or NBFCs, either online or offline, stating your reason for opting for the moratorium. Lenders then confirmed approval and updated the repayment schedule.
RBI’s moratorium policy became a vital short-term relief measure, balancing borrower protection with financial system stability during a nationwide economic crisis.
How to apply for a moratorium on a loan?
Here’s a step-by-step guide on how to apply for a moratorium:
1. Check eligibility
You must have a standard and active loan account, and it should not be overdue for more than 90 days. The moratorium is usually available for personal loans, home loans, education loans, auto loans, and business loans.
2. Contact your lender
Visit your bank or NBFC’s official website, mobile app, or nearest branch. Look for the moratorium request form or ‘loan deferment’ section. You can also call customer service or write an email requesting temporary relief.
3. Submit the required documents
Next, you must provide loan account details, ID proof (PAN/Aadhaar), and proof of financial hardship (such as salary slips, layoff letters, or business loss statement). Some lenders may ask for a self-declaration stating your inability to pay EMIs temporarily.
4. Await lender approval
The lender reviews your request and confirms via SMS, email, or letter. Once approved, your EMI payments are paused for the approved duration, usually 3 to 6 months.
Tips for applying for a moratorium:
If you’re applying online, use internet banking or mobile apps for faster processing.
If you’re applying offline, visit the branch with the necessary documents and fill out the moratorium form.
Always get written confirmation to ensure your credit score remains unaffected.
Moratorium period vs grace period: Key differences
The moratorium period and the grace period provide payment flexibility to borrowers. A moratorium period is the pre-repayment window offered before EMIs begin. It is common in education, home, and business loans. It gives you time to stabilize your finances without being treated as defaulters. In contrast, a grace period is a short extension, usually 3 to 15 days, after the EMI due date.
Below is a comparison of the two terms:
Basis
Moratorium period
Grace period
Meaning
The time between loan disbursement and the first EMI due date.
The short period after the EMI due date during which payment can be made without penalty.
Duration
Ranges from 3 months to several years (e.g., course duration + 6 to 12 months for education loans).
Usually, 3 to 15 days after the EMI due date.
Purpose
To provide borrowers with time before starting repayments, often due to financial or income delays.
To offer a short buffer for timely payment after the due date.
Interest accrual
Interest continues to accrue and may be capitalized into the loan amount.
No additional interest or penalty if payment is made within the grace period.
Applicability
Education loans, home loans (under-construction properties), business loans
Credit cards, personal loans, or standard EMIs
Example
An education loan with a moratorium during study years.
Paying a personal loan EMI 5 days after the due date without penalty.
Conclusion
The moratorium period plays a significant role in giving you financial flexibility and peace of mind during times of uncertainty. It serves as a temporary relief mechanism that allows individuals and businesses to defer EMI payments without being labelled as defaulters. By pausing repayments for a specific duration, you can focus on stabilizing your finances, managing emergencies, or resuming income flow without damaging your credit history.
While the moratorium offers short-term support, it is essential to understand that interest continues to accrue during this period. As a result, your overall repayment burden increases later. Hence, you should weigh the benefits of immediate relief against the long-term cost impact.
In India, the moratorium system, especially during events like the COVID-19 pandemic, proved to be a vital policy tool for maintaining financial stability and borrower confidence.
The moratorium period is not a waiver but a financial cushion. The feature is designed to balance relief with repayment responsibility, empowering you to recover from short-term financial strain while keeping your long-term credit goals intact.
Can I opt for a moratorium period after my personal loan EMIs have started?
Yes, you can opt for a moratorium even after your personal loan EMIs have started. However, it depends on your lender’s approval. You must submit a formal request explaining your financial hardship, and the lender may allow deferred payments for a specific duration based on your repayment history and eligibility.
Does the moratorium period increase the total interest payable?
Yes, the moratorium period increases the total interest payable. Though EMIs are paused, interest continues to accrue on the outstanding principal. This additional interest is either added to your loan balance or extends your repayment tenure, resulting in higher overall repayment.
Will my credit score be affected if I take a moratorium?
No, your credit score won’t be affected if you take a moratorium officially approved by your lender. Since the RBI and financial institutions treat it as a deferred, not a missed, payment, it doesn’t count as default. However, unapproved delays or skipped EMIs can harm your score.
Is the moratorium period available for all kinds of personal loans?
Moratoriums are generally available for personal loans, but not automatically. The availability depends on the lender’s policies and your financial condition. Some banks may offer it only during emergencies or regulatory relief periods, such as the RBI’s COVID-19 moratorium.
How long can a moratorium period typically last?
A moratorium period typically lasts between 3 and 6 months, though it may vary depending on the loan type and lender policy. For example, education loans can have moratoriums extending through the course duration, plus 6 to 12 months after graduation.
Can I partially pay EMIs during the moratorium?
Yes, you can choose to make partial EMI payments during the moratorium. If you do so, your total interest accumulation and overall repayment burden will reduce. Many lenders allow flexible options, such as paying only interest or part of the EMI, to help borrowers manage temporary financial stress more efficiently.
21 November 2025
12 mins read
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