Definition
Moratorium
A moratorium is a temporary pause on loan repayments granted by a lender, during which EMIs are deferred but interest usually continues to accrue.
A moratorium is a repayment holiday during which you are not required to pay EMIs for a set period. Education loans, for instance, commonly include a moratorium covering the study period plus a few months, and lenders may grant moratoriums during financial distress (as seen during the COVID-19 relief measures).
Crucially, a moratorium defers but rarely waives the dues — interest typically keeps accruing on the outstanding amount during the pause, increasing your total cost or extending the tenure once repayments resume.
Before opting for a moratorium, understand how the accrued interest will be handled (added to principal, paid later, or stretched over more EMIs), as it can substantially raise the overall repayment.
Related terms
- Section 80ESection 80E gives a deduction for the interest paid on an education loan taken for higher studies, with no cap on the interest amount.
- EMI (Equated Monthly Instalment)An EMI is the fixed monthly payment you make to repay a loan, combining both principal and interest.
- Loan AmortizationAmortization is the process of paying off a loan through scheduled instalments, with each payment split between interest and principal.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.