There may be times when you won’t be able to make regular loan payments due to job loss, health emergency or any unexpected expense. During such times, a moratorium period can act as a short-term buffer period, providing help so that you stay financially afloat without missing EMIs.
Whether you have taken a personal loan online or through a traditional lender, it is important to understand how the moratorium period works. This can help you make the right decision when facing financial hardship. Knowing what your options are can ease the pressure and support your financial situation.
Read on to find out how a moratorium can help you get control of your finances.
What is the Moratorium Period in Personal Loan?
A personal loan moratorium period is when the borrower is granted a temporary break from making loan repayments by the lender. The borrower does not have to pay EMIs during this time.
Depending on the loan product and lender’s policy, a moratorium may be offered either at the start (more common for education loans) or later during the loan term upon request. For personal loans, the period is usually between 1 to 6 months, but this varies.
But, depending on the lender’s policies and the borrower’s financial condition, it may also be offered later during the loan term.
How Does Moratorium Period Work in Personal Loan?
The moratorium period in personal loan functions as a break from repayment. A borrower is not required to make loan repayments once the term has been granted by the lender. But this does not mean the loan doesn’t need to be repaid. Instead, the interest is charged on the principal amount throughout the moratorium.
This can be useful during financial emergencies or at the start of a loan. While it offers temporary relief, borrowers need to be prepared for a longer repayment period and slightly higher total cost during the extended duration of their loan repayment.
Benefits of Moratorium Period in Personal Loan
1. Relief During Financial Crisis: Offers a break from EMIs during emergencies like health issues or pandemics.
2. Improved Cash Flow: Frees up money for essential expenses by temporarily pausing repayments.
3. Prevents Defaults: Helps avoid missed payments and penalty charges during difficult times.
4. Protects Credit Score: Keeps your credit score safe by officially pausing EMIs, so you don’t miss them.
5. Supports Financial Planning: It gives you time to reassess your budget and stabilise your finances.
6. Avoids Extra Debt: Reduces the need to take another loan just to manage current obligations.
How is Interest Rate Calculated in Moratorium Period?
During the moratorium period, the interest rate is calculated using the simple interest method. This interest is charged on the outstanding loan balance during the moratorium.
Once the break ends, the unpaid interest is added to your principal, which means your future EMIs will be calculated on the revised (higher) loan amount. The interest accrued during this break does not need to be paid immediately, but it is added to your loan balance once the moratorium ends.
Conclusion
Understanding the moratorium period in a personal loan can make a significant difference when you’re going through financial hardships. It gives you much-needed breathing space by putting your repayments on hold for a while, especially when you’re facing financial pressure.
When used thoughtfully, a moratorium can help you maintain your credit score and avoid falling behind on your loan. Just make sure you’re prepared to resume payments once the break ends so that you can stay on course with your financial plans.
To help you stay financially afloat during tough phases, LoanTap provides personal loans with built-in flexibility and repayment features customised to your needs. With features like step-up repayment, interest-only EMIs, and structured repayment options, you can easily manage your finances even if you need a temporary break in repayments.
FAQs
1. What is a moratorium period in a personal loan?
A moratorium period is when a borrower is granted a temporary break from loan repayments by the lender
2. How can I avail of a moratorium on my personal loan?
To avail a moratorium, you need to contact your lender, evaluate your loan status, submit necessary documents, and sign a revised agreement that includes the moratorium terms.
3. Which types of loans come with a moratorium period?
Moratorium periods are typically offered on personal loans and education loans. However, the availability and duration depend on the lender’s policy and your loan agreement.
4. Will my credit score be affected during the moratorium period?
No, if the moratorium is officially approved by the lender, it won’t affect your credit score. However, if you stop paying without informing the lender, it may result in missed payments on your credit report.
5. Is the interest charged during the moratorium period?
Yes, the interest is charged on the outstanding loan amount during the moratorium period. This interest is added to your loan, increasing the total payable amount over time.
