What Is a Loan Moratorium?
A loan moratorium is a period of temporary suspension of your EMIs for a specified period of time. This is beneficial because it gives you time to plan your finances better and to recover from unforeseen financial hardships. However, remember that a moratorium is not a waiver or deferment of loan EMIs, so it is important to contact your lender to make sure that you qualify. The duration of a loan moratorium depends on the amount and type of loan you have.
When the economy is experiencing a tough time, a loan moratorium is a temporary break in activity. The bank will announce a moratorium for a specific amount of time and borrowers may opt to stop making payments during this period. When the moratorium period ends, they are still considered current borrowers, but interest continues to accrue on the amount they’ve not yet paid. The interest added to their loan burden is very high, and they may not be able to catch up on the missed payments.
The moratorium will apply to all loans, and is available to victims of the COVID-19 pandemic. Once the moratorium period is over, borrowers can resume repayment after three or six months. This moratorium is meant to strike a balance between the needs of banks and non-bank lenders, while keeping the financial stability of the country in mind. Domestic banks should have enough reserves to absorb the additional burden. The moratorium also helps protect the nation’s economy by providing additional time for individuals to seek financial assistance.
However, a loan moratorium can negatively affect your long-term financial goals. If you have no intention of paying off the loan in full, the moratorium will prolong your repayment period by at least three or four years. Therefore, it is important to make sure that you enter a moratorium only when you have committed to disciplined financial goals. If you plan to use a moratorium to restructure your loans, only serious borrowers should take this step.
Moreover, a loan moratorium gives you time to accumulate funds and prepare a repayment plan. It also gives you the chance to save up funds for future EMIs. Furthermore, unlike other forms of deferring loan repayment, a loan moratorium will not negatively affect your credit score. Borrowers who have a history of late payments or missed instalments should consider this option. This option will help them avoid defaults and make their budget more affordable.
However, the moratorium is not available to everyone. It will depend on individual banks to determine the criteria that qualify for a moratorium. While the State Bank of India has already allowed all borrowers to take advantage of this option, it is still important to check with your bank about their specific requirements. The moratorium will apply to loans in which EMIs were due on 1 March 2020. It is also important to note that borrowers will still need to visit the bank in person if they wish to take advantage of this option.