Interest servicing during moratorium period: Does it help?
By Neelima Shankar
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Holiday period or moratorium is the tenure, which commences from the disbursal of the loan to the time the borrower makes his/her first Equated Monthly Installment (EMI). This is the period in which the repayment doesn't start. Depending on the type of the loan, the duration of this period may vary. For instance, in education loans, the period is the duration of the course plus 1 year or 6 months after getting a job, whichever is earlier.

This cushion period is provided for the borrowers to arrange for funds before actual repayment in the form of Equated Monthly Installment (EMI) begins. In case of education loans, it is 12 months or 6 months after getting a job, whichever is earlier. While in case of home loans it is up to 18 months, allowing completion of the construction of the home/residence.

Loan servicing in moratorium period

However, the borrower has the discretion of servicing his/her loan during the moratorium period too if he/she wishes to. The benefit of doing so is that the banks offer a concession on interest rates if the borrower starts paying back interest in the holiday period.

However, the terms and conditions on servicing of loans in the moratorium period vary from bank to bank. For instance Punjab National Bank offers 0.5% concession on interest serviced during the holiday period, whereas Allahabad Bank, Corporation Bank, and Union Bank of India offer 1% concession on interest if the borrower services his/her loan during the moratorium period.

The interest rate charged during the moratorium/ loan repayment holiday is generally charged quarterly or half yearly on simple interest basis. If the interest is serviced during this period, the accumulated sum must be added to the principal and the EMI is thus accordingly adjusted by the bank.


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(Comments Posted : 10) Post Your Comments
1. In a term loan, is it mandatory to mention regarding moratorium period in the sanction letter, can the bank still charge moratorium interest if nothing is mentioned ?
Narendra Bhatia (Posted: Jun 26, 2017)
2. I have taken educational loan of Rs.7.30 Lakh @11.25% (BR+1.00) interest for my son Lalit for doing MBA on 07/06/2014 from IDBI bank.
In the sanction letter it is clearly mentioned that 1% concession will be given if interest is served during moratorium period.
I have paid interest @11.25% during moratorium period of 18 months. The EMI started from 05/11/2016.
IDBI bank is refusing to give 1% concession and adjust Principal amount and EMI amount.
Kindly let me know what should I do now.
Vinay Sawant
Vinay Sawant (Posted: May 25, 2017)
3. how do you treat interest during the months of moratorium in the income statement.

Do we make a provision as it is an expense?
Malungisa Zwane (Posted: May 26, 2016)
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