Advantages and Disadvantages of Loan EMI Moratorium

Loan EMI Moratorium

6 mins read

Last updated on 29th March 2024

In recent times, particularly during economic downturns or unforeseen financial crises, the concept of a loan moratorium has come into the spotlight as a much-needed relief for borrowers. A moratorium period is a temporary suspension of loan repayments allowed by financial institutions, designed to offer borrowers breathing space during tough times. While it may seem like a boon at first glance, like any financial decision, opting for a moratorium comes with its own set of advantages and drawbacks. This blog explores the pros and cons of availing a loan EMI moratorium, aiming to provide a balanced perspective to help you make an informed decision.

Table of Contents

Pros of Loan EMI Moratorium

1. Immediate Financial Relief

The most evident benefit of a loan moratorium is the immediate relief it offers from the financial burden of monthly EMI payments. During periods of financial instability, such as job loss or a medical emergency, this can provide critical breathing space to reallocate resources where they are needed most.

2. Credit Score Protection

Opting for a moratorium as offered by your lender does not directly impact your credit score. Since the deferment is a formal arrangement with the lender, it's not reported as a missed or late payment, thus safeguarding your credit rating during the moratorium period.

3. Enhanced Cash Flow Management

The moratorium period allows for better cash flow management in uncertain times. It gives individuals and businesses the flexibility to manage their cash reserves more efficiently, prioritizing essential expenses without the immediate pressure of loan repayments.

Suggested read: Moratorium Period in Home Loans

Cons of Loan EMI Moratorium

1. Interest Accumulation

While a moratorium may pause EMI payments, interest does not stop accruing on the principal amount. This means the total amount payable over the loan term increases, making the loan more expensive in the long run. Borrowers should carefully consider the impact of this increased cost against the immediate relief provided.

2. Extended Loan Tenure

To accommodate the paused payments, lenders typically extend the loan's tenure. This extension means you will be in debt for a longer period, which could affect future financial plans and commitments.

3. Potential for Mismanagement

The relief of a moratorium might lead some borrowers to mismanage the temporary reprieve, using funds that would have gone towards EMIs on non-essential expenditures. Without disciplined financial planning, this can lead to a tighter financial situation once the moratorium period ends.

4. Making the Decision

Deciding whether to opt for a loan EMI moratorium requires a careful assessment of your financial situation and future outlook. If you're facing a temporary setback and expect to recover financially soon, the moratorium can provide much-needed relief. However, it's important to consider the long-term implications of increased interest payments and a longer debt tenure.

Loan EMI Moratorium Pros and Cons - A Quick Look

Pros Cons
Immediate Financial Relief - Offers a pause in EMI payments, providing breathing room during financial hardships. Interest Accumulation - Interest continues to accumulate on the principal amount, increasing the overall loan cost.
Credit Score Protection - Opting for a moratorium is officially recognized and does not harm the borrower's credit score. Extended Loan Tenure - The loan tenure is extended to compensate for the pause, keeping borrowers in debt for a longer time.
Enhanced Cash Flow Management - Allows for better management of cash reserves, prioritizing essential expenses without the pressure of immediate repayments. Potential for Mismanagement - The temporary financial relief could lead to misallocation of funds towards non-essential expenditures.


FAQs about Advantages and Disadvantages of Loan EMI Moratorium

No, a moratorium officially granted by your lender does not affect your CIBIL score as it's not reported as a missed or late payment.

The issue with a moratorium in the financial system is that while it offers immediate relief to borrowers, it can lead to liquidity issues for lenders and potentially increase the risk of defaults in the long term.

Yes, it is possible for a loan moratorium extension to be granted, but it largely depends on the lender's policies and the prevailing economic conditions or regulatory guidelines at the time. If circumstances such as a prolonged financial crisis or regulatory decisions support the need for extended relief to borrowers, lenders may offer an extension. 

Yes, if a borrower decides not to continue with the moratorium, they can request the lender to cancel it and resume their regular EMI payments.

Yes, borrowers have the option to continue paying their EMIs during the moratorium period if they choose to, avoiding additional interest accumulation.

Yes, interest continues to accumulate on the principal amount during the moratorium period, which can increase the overall cost of the loan.

Yes, to accommodate the paused payments, the loan tenure is often extended, resulting in a longer repayment period.

You should contact your lender directly to inquire about the application process for a loan EMI moratorium, as procedures can vary between financial institutions.

Eligibility can vary depending on the lender and the type of loan. It's essential to check with your specific lender about which loan products qualify for a moratorium.

Once the moratorium period ends, borrowers are expected to resume their regular EMI payments as per the revised schedule accounting for the moratorium period.

Published on 29th March 2024