A moratorium period, also called a repayment holiday or EMI holiday, is a window at the start of a loan when you do not have to pay full EMIs. EMI stands for equated monthly instalment, the fixed amount you pay every month to clear a loan. The word “moratorium” comes from a Latin word meaning delay. In lending, it simply means a planned delay in repayment.

Lenders offer it when they know the borrower will not have a steady income yet. A student has no salary until a job begins. A family buying a flat that is still under construction may already be paying rent, so extra EMIs can strain the monthly budget. The length of the pause is fixed in the loan agreement, so you should know it before you sign.

In India, banks and NBFCs (non-banking finance companies, which lend like banks but do not hold a full banking licence) set their own moratorium terms within the rules laid down by the RBI, the central bank. A pause is not a waiver. The loan, and usually the interest, is still there when the pause ends.

Did You Know?
In March 2020, the RBI allowed lenders to give borrowers a three-month moratorium on instalments for term loans (loans repaid in fixed instalments over a set period) that were outstanding on 1 March 2020, to ease the strain of the COVID-19 lockdown.

How Does a Moratorium Period Work?

The idea is easy, but the order of events matters. Here is how a typical moratorium unfolds, using an education loan as the model.

1. The loan is sanctioned and paid out. The lender releases the money, in full or in parts, to the college or builder.
2. The moratorium starts. In a full moratorium you pay nothing. In a partial moratorium you pay only the interest each month.
3. Interest builds up. Public sector banks generally charge simple interest on the principal (the original amount borrowed) during this time. Some lenders may charge compound interest, which means interest is charged on interest as well. The unpaid amount is called accrued interest.
4. The unpaid interest is added to the loan. This is called capitalisation, and it makes your principal bigger than it was on day one.
5. Full EMIs begin. They are worked out on the higher balance and spread over the remaining loan tenure.

Pro Tip:
If you can, pay at least the interest every month during the moratorium. On its education loans, SBI says that if you pay the full interest before repayment begins, your EMI is based on the principal alone.

Example of a Moratorium Period with Real Numbers

Imagine Suresh, a 45-year-old manager in Ahmedabad, takes a ₹20 lakh education loan for his daughter’s MBA in Bengaluru. He is the co-borrower. The loan carries 10% interest a year, with a two-year course and a six-month moratorium after it, so the pause lasts 30 months. To keep the sums easy, assume the full amount is paid out on day one and interest is simple.

Suresh then has two choices. He can pay nothing during the 30 months, or he can pay the interest each month. Repayment after the moratorium runs for 7 years (84 months).

This means Suresh saves nearly ₹2 lakh in total under Option B, and his monthly EMI is about ₹8,300 lower. The saving comes from not paying interest on the ₹5 lakh of unpaid interest later. These figures are only an illustration. Real terms differ by lender, loan scheme and how the money is paid out.

Types of Moratorium Period

Moratoriums are not all the same. The purpose, length and what you pay during the pause change with the kind of loan.

Education Loan Moratorium

This is the most common kind in India. It usually covers the course period plus six to twelve months, or until you get a job, whichever comes first. For study in India, SBI starts repayment 12 months after the course ends or 6 months after getting a job, whichever is earlier.

Home Loan Moratorium (Pre-EMI Period)

When you buy a flat that is still being built, the bank pays the builder in stages. Until possession, you often pay interest only on the amount paid out so far. This is called pre-EMI. Full EMIs begin after possession. Lenders use different names for this, so ask which one applies to you.

Business or Project Loan Moratorium

A new factory or shop takes time to start earning. Lenders give a gestation period (the time a project needs before it makes money) during which the business may pay only interest. Principal repayment starts once the project is expected to earn.

Relief Moratorium

This is a temporary pause given in an emergency. The best-known example is the RBI’s 2020 pause for term loans. A lender may also offer a short pause on request if you face hardship. See forbearance and loan restructuring for how these differ.

Quick comparison

Key Components: What to Look For

Before you accept a loan with a moratorium, read these six points in the sanction letter.

1. Length of the period. Check when it starts and ends. Some end on a fixed date, others on an event such as getting a job.
2. Full or partial. A full moratorium means no payment. A partial one means you pay interest only.
3. Interest method. Ask if interest is simple or compounded. Compounding makes the loan costlier.
4. Find out whether unpaid interest is added to the principal, and when.
5. Effect on EMI and tenure. A bigger balance means a higher EMI, a longer loan tenure, or both.
6. Paperwork and credit record. Get the moratorium confirmed in writing. An unapproved skipped EMI can hurt your credit score.

Benefits of a Moratorium Period

1. Breathing room when income is low. A fresh graduate in Pune or Hyderabad can focus on finding a job before EMIs begin.
2. Repayment that follows income. On education loans, EMIs start around the time a salary does, which suits families funding a child’s degree.
3. Lower cash strain for home buyers. With pre-EMI, you pay interest only on the amount paid out so far, not the full loan.
4. Time to prepare. The pause lets you build an emergency fund or set money aside to pay interest, if your budget allows.

Risks and Limitations

1. A costlier loan. Interest keeps building up. On the example above, ₹20 lakh grows to ₹25 lakh before the first EMI. Paying the interest as you go reduces this.
2. Interest on interest. If the lender compounds or capitalises unpaid interest, you pay more later. Ask for the method in writing.
3. A higher EMI later. Once EMIs begin, they are worked out on the larger balance, which can strain a first salary.
4. Rate changes. On a floating-rate loan, a rise in the policy rate can push your cost up. See our note on the RBI’s latest repo rate decision.
5. Credit record problems. If the pause is not formally approved, a missed EMI can be reported. Confirm the terms with your lender.

Important:
A moratorium is not a waiver. Many borrowers treat it as free time and are surprised when the loan balance is higher than what they borrowed.

Frequently Asked Questions

1. What is a moratorium period in simple words?

It is a time at the start of a loan when you do not have to pay full EMIs. You may pay nothing, or only the interest. When the period ends, regular EMIs begin. It is a delay in repayment, not a cancellation of the loan.

2. Is interest charged during a moratorium period?

Usually yes. On education loans, SBI says the interest that builds up during the course and moratorium periods is added to the principal. Public sector banks generally use simple interest during this time. Some lenders may use compound interest, so check your loan terms.

3. How long is the moratorium period on an education loan?

Many lenders set it as the course length plus six to twelve months. For study in India, SBI starts repayment 12 months after the course ends or 6 months after getting a job, whichever is earlier. For study abroad, it starts 6 months after the course ends. Terms differ by lender, so check your sanction letter.

4. Does a moratorium period affect my credit score?

An approved moratorium written into your loan terms should not by itself count as a missed payment. Skipping an EMI without approval can hurt your credit score. Reporting practices can differ, so get the arrangement confirmed in writing and check your credit report afterwards.

5. Is a moratorium the same as an EMI holiday or forbearance?

An EMI holiday is another name for a moratorium. Forbearance is a little different. It is a temporary relief a lender gives when you face hardship, usually after the loan has started. A moratorium is normally part of the loan terms from day one.

6. Is this the same as a moratorium under insolvency law?

No. Under the Insolvency and Bankruptcy Code, a legal moratorium stops lenders from recovering dues from a company once its insolvency process begins. That protects the company. The moratorium period on a loan is an agreed repayment pause for a borrower, and the two should not be confused.

7. Should I pay the interest during the moratorium?

If your budget allows, usually yes. Paying even the interest keeps your balance from growing and can lower your EMI later, as the example above shows. If cash is tight, ask your lender about the interest method first. A planner can help you fit this into a larger goal, such as a child’s education.