Moratorium Period: Learn Everything About It

By: Jaivinder Bhandari
Review By: Ankur Koul

Updated on: December 22, 2025

A moratorium period is an important element of financial management, especially for the debtor who is faced with some challenges not expected. Life can be so unpredictable, and one may lose a job, have a medical emergency, or an economic meltdown, such situations pose a challenge to meeting their obligations. In such a situation, a loan moratorium is like the lifeline that deals with the situation as suspension of repayment of loans for an uncertain period without imposing penalties on the credit scores.

This understanding of loan moratorium can help individuals make informed decisions on their personal finances and also helps in navigating periods of financial stress. This knowledge about the tool would be a godsend for borrowers who could then, in the short term, manage debt repayment effectively as they planned toward greater stability.

This blog shall delve into the meaning of a moratorium period, its definition, features, and common use thereof. We will also look at the implications for borrowers opting to exercise this option, including possible benefits and drawbacks. Finally, we shall discuss the strategic use of a moratorium in financial planning.

What is a Moratorium Period?

A moratorium period refers to the temporary suspension of repayment of loans, whereby borrowers will not be penalized and won't risk being marked as defaulting. It is a financial relief device meant to help an individual come out of difficult situations that may deprive them of repaying obligations. Moratoriums can be availed for any of the loans: personal loan, home loans, educational loans, business loans, etc.

This period has mainly provided comfort in principal and interest payments, so at the time of the moratorium, the borrower is not generally liable to make any payments. This period is especially helpful for people when they go through financial problems, especially those arising due to loss of employment, medical emergency, or any other, thereby resulting in losing income or having other undue expenses. It also provides an opportunity for borrowers to reconsider their financial conditions, learn how to deal with debts, and prepare their payback procedures once the moratorium is over.

Example of Moratorium Period

Here is a moratorium period example:

Arjun borrowed ₹40 lakh from X Bank to grow his café business in January 2020. He had to repay the amount in six monthly installments of ₹6.7 lakh each as per the loan terms (totaling ₹40.2 lakh). The first EMI was scheduled for February 2020, with payments due at the beginning of every following month.

The nationwide lockdown forced Arjun to shut down his café by mid-March 2020. X Bank in light of this sudden disruption, offered him a moratorium from March to June 2020 at no extra cost. This arrangement lets him postpone the April EMI to July 2020. This further gave him timely financial relief.

Key Features of a Moratorium Period

A moratorium period is one of those important financial tools through which temporary relief is afforded to borrowers in times of hardship. Awareness of the distinctive features that characterize a moratorium period can guide an individual as he or she takes decisive steps regarding loan management. Here, we discuss the salient features of a moratorium period and how such features impact borrowers.

1. Temporary Suspension of Payments: The first feature of a moratorium period is that the payment of both principal and interest for a definite period is temporarily stopped. It well suits the debtors in case of either losing a job or some medical conditions. The respite of stopping the payments provides considerable relief to the borrower in the short term while he or she is attempting to adjust his or her checkbooks without the burden of servicing the loans.

2. No Immediate Impact on Credit Score: Moratorium period does not affect the credit score immediately for the period of the moratorium. Borrowers also shall not be penalized if they do not pay during the moratorium period. For this reason, a credit score is not a cause for concern for them. They can concentrate on building their financial health without sustaining damage to their credit profile.

3. Interest Accumulation: While a moratorium does provide the borrower with some much-needed respite, such borrowers should remember that interest on the loan may continue to accrue during this time, which tends to add up to a higher total when the moratorium ends. It is important for borrowers to note that the loan balance grows even while they do not pay because of accrued interest. This is why prudent planning is the key.

4. Specified Duration: A moratorium period is not fixed. Lenders usually provide a fixed period of months for the suspension of payments. A defined period may depend on the lending house's policy, type of loan, and especially on the borrower's individual case. For borrowers, the information about a defined period is crucial because it lets them know within what period they will have to review their financial situation and get prepared to resume making payments.

5. Eligibility Criteria: Not all borrowers are eligible for a moratorium period. Lenders have criteria that ought to be fulfilled before one gets the moratorium period. Determination is for instance affected by the loan applied for and the borrower's payment history and current financial status. If the lender determines a good repayment history and evaluates the purposes of requesting the moratorium, then a moratorium will be put in place. It is crucial to explain these eligibility criteria to the borrower. It would aid him in judging whether or not he would qualify for a moratorium and prepare him for the application process.

Advantages of Moratorium Period

Here are the benefits-

1. Relief During Financially Difficult Times: A moratorium offers a temporary break from your loan repayments. This offers relief during financial hardships like Job Loss, Medical Emergencies Or Economic Slowdowns.

2. No Immediate Money Issue: You can manage essential expenses without the stress of paying EMIs during the moratorium. This helps you maintain financial stability.

3. Helps Avoid Any Default: You can avoid loan defaults by pausing payments. This way, you can avoid late fees as well as penalties. This protects your credit score.

4. Help You Regain Your Financial Stability: The period lets you stabilise your income sources & recover from financial setbacks. This ensures you can resume payments on time.

5. Flexibility In Managing The Loan: It helps you restructure repayment schedules accordingly. This makes future EMIs more manageable.

6. Protecting Your Credit Score: Timely resumption after the moratorium protects your creditworthiness. This ensures future loan approvals.

A moratorium is helpful in challenging times & can offer the above benefits.

The Importance of a Moratorium Period

An effective moratorium on loans is an important component of relief for many borrowers in tough times.

• Financial Relief: Job loss, medical emergencies, or an economic slump can place heavy financial burdens on an individual or family. The moratorium period gives borrowers an opportunity to stabilize their finances without the burden of repaying the loan promptly. During this period, people can breathe a sigh of relief and plan how they can get back to their normal payments to overcome their stressful situations.
  
  
• Avoiding Default:  A defaulting position that causes real harm to clients not only through the consequences of litigation but through actual damage to credit scores would be avoided through a moratorium period. In this way, borrowers would not fall into a default position in tough times by taking advantage of this option, which would keep them in good standing with their lenders and protect their creditworthiness for future transactions.
  
  
• Planning for the Future: The moratorium period thus gives an opportunity for the borrower to relook and make an appropriate decision for the future. It is a time when, for instance, one takes alternative sources of income, minimizes unnecessary expenses, or reorders budget plans in relation to future loan repayments. Therefore, it is a reflection period mixed with a planning period, thus forming a viable financial base and setting the borrower ready for facing the obligations once the moratorium ends.
  
  
• No Impact on Credit Score: The moratorium will not adversely affect the credit score of the borrower while payments are suspended. Of course, it must be understood that incurring interest upon the total principal loan amount can increase the total, but consumers are free to enhance their overall healthy status by eliminating over-dues and arrears of repayments. This aspect can be really helpful to those wanting to improve their credit profiles in the future.
  
  
• Access to Other Financial Options: The borrower, during a moratorium period, may look around at other financial products and take the opportunity to search for refinancing or consolidating loans with favorable terms or interest rates. It could be the time to look for alternatives that might suit his present condition better for a better financial plan.

How does the Moratorium Period work?

A moratorium period lets you postpone EMI payments for a fixed duration upon taking a loan. No monthly installments are required during this time. It offers you enough time to organise your money before regular repayments begin.

That said, interest accumulates on the outstanding balance. This means the overall repayment amount grows. EMI payments are recalculated after they are resumed. They include both the original loan amount as well as the interest included during the break once your moratorium ends. 

How to Calculate Moratorium Period?

A moratorium period is a time during which you do not have to pay your EMIs. Let's take an example to see how it works:

Suppose you borrow ₹20,00,000 as a home loan for 20 years (240 months) at an annual interest rate of 8%. The bank allows a moratorium of 6 months.

Loan sanctioned: January 2025

EMI begins: July 2025 (after the 6-month moratorium)

Even though no EMIs are paid during this break, interest keeps building on the principal. For a 6-month moratorium:

Monthly interest = (loan amount × interest rate) ÷ 12

₹20,00,000 × 8% ÷ 12 = ₹13,333

Total interest in moratorium = ₹13,333 × 6 = ₹80,000

How to Apply for a Moratorium Period

In case you think that you might require a loan moratorium, here are the steps you may follow in order to apply for it:

• Review Your Loan Agreement: Understand or review your loan agreement properly to identify some special terms that are related to moratorium periods on most loan agreements, a lender would already have made provisions in terms of moratoriums. At times, it would be attached as some additional document or would form part of a proper application process. Once you are familiar with those details, you will know how to proceed better.
  
  
• Contact Your Lender: After you understand your loan agreement, get in touch with your lender for a discussion on your financial condition. Come clean about the challenges and difficulties you face while asking for a moratorium period. Lenders appreciate honesty, and they may be more lenient with borrowers who are genuinely facing difficulties. Constructive conversation will put everything in positive terms.
  
  
• Gather Documentation: Most lenders will ask for documentation for the moratorium request. This would include proof of loss of income, medical bills, or any document that can truly attest to your condition and difficulties in handling the finances. Being prepared beforehand with this documentation is going to save a lot of time in the approval process since it will prove your intent and willingness to overcome your situation.
  
  
• Submit a Formal Request: Once you have obtained all your documents, you can make a request for a moratorium period. You should include all relevant information clearly explaining why you're seeking a moratorium period. The lenders have their preferences through which this request is usually submitted via email, online portal, or in-person. A well-structured request will definitely increase approval chances.
  
  
• Follow Up: Follow up with your lender after presenting your request. You can ensure that your request is being processed, and this will facilitate a quicker response and resolution by staying proactive in communicating about it. Check-ins have been proven to show interest in resolving the matter while continuing to maintain a positive relationship with your lender even at this challenging time.

Difference Between Moratorium Period and Grace Period

A moratorium period gives you a chance to postpone EMI payments for a duration after the loan is disbursed. But the moratorium period is not similar to a grace period.

Here are the differences between the moratorium period & grace period -

Common Misconceptions About Moratorium Periods

Despite all the benefits of a loan moratorium, there exist several misconceptions that have been perpetuated in general and caused confusion among the borrowers. Knowledge about them would always be helpful in making appropriate financial decisions.

• Moratorium Means No Interest Accrual: The most common belief is that a moratorium period means no interest accrual. This is very far from the truth. While payment obligation is suspended, oftentimes interest continues to be accrued on the loan. The repayment amount would then be higher compared to before the moratorium had begun. Borrowers ought to know this to prevent such an awkward surprise at a later date.
  
  
• Moratoriums are Automatically Granted: Many borrowers feel that they would automatically get a moratorium period the day they apply. It is definitely not the case. Lenders always have a set of eligibility criteria that one needs to satisfy before an application for a moratorium is granted. One needs to reach out and communicate with your lender on the policies related to obtaining a moratorium and be ready with all relevant documents required at the time of applying.
  
  
• Moratoriums Can Last Indefinitely: Most people fail to understand the fact that even moratorium periods may run into infinity. Technically, there is a date set by lenders on how long the moratorium shall be granted. Thus, a borrower will be called upon to begin payments after such a period expires. Knowing the duration of the moratorium period can help plan properly for return payments for borrowers.
  
  
• A Moratorium Period is a Long-Term Solution: A moratorium period may seem like a temporary reprieve from financial shortcomings. Borrowers need to identify this opportunity as a time to create a plan that can help control their financial condition and return back to the regular schedule of repayments. Alleviating only by moratorium without addressing the actual financial problem would create a deep hole later.
  
  
• Applying for a Moratorium Will Hurt Your Credit Score: Many people are afraid that applying for a moratorium will negatively affect their credit score. But if the lender allows the application and documents it clearly, then the borrower's credit score should not be affected during this period. If that is realized, then the borrower should not have fears about his or her credit profile and can take relief like any other remedies available in the law.

How to get a Moratorium on your loan?

1. Review the agreement: Go through your loan documents to check if a moratorium option is mentioned.

2. Check eligibility: Make sure your situation such as income loss or medical issues suits the criteria.

3. Approach your lender: Submit a formal request to your bank or NBFC, clearly stating your need.

4. Share evidence: Share supporting documents like salary slips, job termination letters or medical bills.

5. Discuss terms: Finalise the moratorium period & repayment adjustments with your lender.

6. Stay informed: Keep track of any government relief measures or RBI announcements that may apply.

7. Get expert help: Talk to a financial advisor to know the impact on your repayment plan.

Conclusion

Understanding the concept of a moratorium period is imperative to troubled borrowers. A loan moratorium is a much-needed respite that enables individuals to stabilize their finances, avoid any defaults, and establish repayment plans with no immediate pressure to repay. Such support is very useful during unexpected hardships, like job loss or medical emergencies.

However, it does have a few connotations as interest accumulation and eligibility criteria. It only seems to relieve short-term pressure but definitely isn't a solution long-term. With this knowledge about the loan moratorium, you might be able to discuss matters systematically with your lender and make decisions that would enhance your financial health. Whether you are hitting unexpected roadblocks or are just looking for a better handle on your loans, knowing the moratorium period is an empowering tool that helps you walk through and navigate your financial journey.

Frequently Asked Questions (FAQs)

Q.1. How long does a moratorium period typically last?

A moratorium period lasts between three & six months. It entirely depends on the lender's policy as well as regulatory guidelines. You aren't required to pay your EMIs during this time. However, interest accrues on the outstanding loan amount. This increases the overall repayment burden after the moratorium period comes to an end.

Q.2. What does a 3-month moratorium mean for a borrower?

A moratorium of three months means that you do not need to pay EMIs for these months. However, interest will continue to accumulate on your unpaid principal as this is not a waiver. You must resume payments with a higher EMI amount or revised repayment schedule once the moratorium ends.

Q.3. Can I continue paying EMIs during the moratorium period?

You can continue paying EMIs during the moratorium period. The moratorium is optional. Paying regularly helps avoid additional interest accumulation. It prevents an increase in the total repayment amount. You can continue payment if you have a steady income. 

Q.4. How much will my EMI increase after availing a moratorium?

The EMI increase depends on –

• Outstanding loan amount
• Interest rate and 
• Moratorium duration

Interest continues to accrue during the moratorium. Lenders adjust repayments by either increasing EMI amounts or extending the loan tenure. The longer the moratorium, the higher the financial impact. This makes repayment costlier in the future.

Q.5. Is it possible to cancel the moratorium period once opted in?

You can cancel the moratorium period after opting for it. You need to inform your lender. EMI payments will resume as scheduled once cancelled. This benefits you if you wish to regain financial stability sooner than expected. This also helps you avoid unnecessary interest costs & keep your repayment burden lower.

Q.6. What happens once the moratorium period ends?

You must resume the EMI payments as per the revised schedule shared by the lender after the moratorium period ends. The accrued interest during the moratorium will either extend the loan tenure or increase the EMI amount. Missing payments after a moratorium may result in penalties or default charges. Alternatively, it may negatively impact credit history.

Q.7. Are there any fees or charges associated with the moratorium period?

Your lenders do not levy a separate fee for availing a moratorium. However, interest continues to accrue on your outstanding loan amount during the period. The additional interest increases your overall repayment liability. You should carefully assess the cost impact before opting. That may raise the entire repayment burden of your loan.

By: Jaivinder Bhandari

Jaivinder Bhandari is a Senior SEO Manager at lendingplate with a passion for writing on a wide range of financial topics, including personal loans, credit and debit cards, investments, money management, and practical financial tips to help people improve their financial well-being. Linkedin Profile