What is the meaning of loan moratorium?

A loan moratorium is a temporary suspension or deferment of loan repayment obligations providing borrowers relief during financial distress or extraordinary circumstances. During moratorium periods, borrowers are not required to make scheduled EMI payments, though interest typically continues to accrue on outstanding amounts.

Moratoriums are financial relief mechanisms during economic crises, natural disasters, or business-specific challenges. The COVID-19 pandemic saw widespread moratorium implementation helping businesses maintain liquidity during lockdown periods when revenue generation was severely impacted.

Types of moratoriums include:

• Emergency moratoriums during economic crises
• Structured moratoriums for project loans during construction phases
• Seasonal moratoriums for agricultural or seasonal businesses
• Voluntary moratoriums negotiated with lenders during temporary difficulties

Interest treatment varies by moratorium type and lender policies. Some moratoriums defer both principal and interest payments, whilst others require interest payments but suspend principal repayments. Compound interest may accrue during moratorium periods, increasing total loan costs.

Moratoriums impact credit scores differently depending on whether they're voluntary or regulatory. Regulatory moratoriums during declared emergencies typically don't negatively affect credit ratings, whilst voluntary moratoriums may be reported as restructured accounts.

Post-moratorium, loans typically resume with revised payment schedules reflecting accumulated interest and extended tenures. Borrowers should understand complete terms including interest implications and revised repayment structures before opting for moratorium benefits.