If you are facing financial difficulties and struggling to pay the EMI of your loan, you can use the moratorium facility. This provides temporary relief from paying the instalment. It was introduced by the RBI during the COVID-19 pandemic when many people had no source of income and were unable to pay their loan EMIs, leading to defaults. However, you should use the loan moratorium facility only as a last resort, as it also has some disadvantages.

What is a Loan Moratorium?

A moratorium means temporarily postponing something. In the case of a personal loan, it allows you to pause your EMI payments for a certain period. This does not cancel your loan but delays repayment. The purpose of this facility is to help people during financial crises such as job loss, business failure, or other emergencies.

Benefits of a Loan Moratorium

  • Temporary Relief from EMIs – It helps borrowers manage financial difficulties caused by job loss, medical emergencies, or other crises.
  • Prevents Loan Default – Borrowers avoid defaulting on their loans during tough times.
  • No Immediate Impact on Credit Score – Not paying EMIs under the moratorium does not negatively affect your credit score.

Disadvantages of a Loan Moratorium

  1. Interest Continues to Accumulate – The loan amount increases due to added interest during the moratorium period.
  2. Higher Repayment Burden – You may have to pay extra interest, increasing your financial stress.
  3. Extended Loan Tenure – Your total repayment period may become longer.
  4. Impact on Future Loans – A moratorium is recorded in your credit report, which may make it harder to get loans later.

Loan Restructuring is a Better Option

A loan moratorium should be your last option as it only provides temporary relief while increasing the financial burden in the long run. Instead, you can request loan restructuring from your bank. This allows you to:

  • Modify loan terms to make repayments easier.
  • Reduce EMI payments based on your financial situation.
  • Avoid the negative impact of a moratorium on your credit report.

If your bank does not agree to restructuring, you can consider transferring your loan to another bank for better terms and lower interest rates.