Understanding the Concept of Moratorium Period in Personal Loans ...

The COVID-19 pandemic has adversely impacted the financial stability of millions in the country. Coupled with the long lockdown period and the economic slowdown, the regular income of many is adversely affected. To allow people some respite in such dire times, the Reserve Bank of India (RBI) directed all banks to permit a three-month moratorium for all term loans, including personal loan, as on March 1, 2020. Recently, the RBI has extended the allowance for another three months ending on August 31, 2020. 

The availability of moratorium is particularly beneficial for educational and house loans. However, its applicability to personal loans needs to be evaluated stringently.

What is a moratorium period?

Also known as ‘EMI holiday’, a moratorium period is a specific grace period during which EMI repayments are suspended. However, the interest rate continues to apply, and the interest is accumulated and paid after the expiry of the term. 

Hence, a moratorium period is not a waiver of the loan. Instead, it is a waiting period before the repayments resume. This allows borrowers to find themselves in a better financial state first and then repay the loan. 

How is the moratorium period applicable to personal loans?

The concept of moratorium works similarly for personal credits too. As per the RBI, even personal loan borrowers can opt for a moratorium, which allows for a grace period with no EMIs while personal loan interest rates continue to be applicable. 

This has provided relief to many, especially self-employed individuals, who are facing a difficult situation financially due to COVID-19 and have debt obligations, including personal loans. The deferment of EMIs is being offered to help people better their monetary condition and effectively sail through the COVID-19 disruptions. 

The personal credit moratorium is a significant support for families too that have a stable income and yet are falling short of money to meet emergency expenses such as the treatment and care of a COVID positive patient. 

Another advantage of a moratorium period is that the delayed payments do not affect the credit score or future loan eligibility. However, since the interest is accumulated for later and not waived off, a person might be faced with a longer loan tenure and hefty EMI repayments. 

Who should opt for a moratorium period?

The choice of opting for a moratorium period depends on the monetary condition of a person. For people whose incomes have been significantly disrupted by the COVID-19 pandemic, opting for a moratorium is a wise strategy. Moreover, those who desire a break from their financial obligations to refocus and readjust their plans, the grace period can prove useful. However, before applying for the moratorium, one must read all the terms and conditions carefully and make an informed choice.

A moratorium period can be beneficial for those in need. The allowance can be claimed by borrowers from all segments. However, the choice must be made with the utmost consideration of one’s financial situation. It is also essential to assess the pros and cons, and accordingly determine if the moratorium will prove to be beneficial. 

With or without the moratorium, given the ease to apply for personal loan from Tata Capital, one can be sure of reliable support in these trying times.