If you are in financial trouble and are having trouble paying the EMI of your loan, then you can use the moratorium facility. This provides temporary relief from paying the installment. It was started by RBI during the Corona epidemic. At that time many people did not have any means of earning. They were not able to pay the EMI of their loan and many people were defaulting on the loan. However, you should take advantage of the loan moratorium facility as a last resort, as it also has some disadvantages.

What is a Loan Moratorium?

Moratorium means to postpone something i.e. to put a temporary stop on it. If we talk about a moratorium on personal loans, then it means that you can stop paying the EMI of the loan for some time. This does not end your loan, but it is postponed for some time. The purpose of this facility is to provide relief to people in times of job loss, loss in business, or any other financial crisis.

Benefits of loan moratorium

Loan moratorium provides relief to borrowers during the financial crisis. This financial crisis can come due to natural disasters, job losses, business losses, medical emergencies, or any other reason. There is no need to pay monthly installments during the loan moratorium. This helps in dealing with financial crises. Due to the loan moratorium, the person taking the loan is saved from default. Also, not paying EMI does not have any negative effect on his credit score.

Disadvantages of loan moratorium
The interest rate remains applicable during the loan moratorium. This means that your loan amount will keep increasing. The person taking the loan may have to pay additional interest during the loan moratorium. This may increase the loan amount, which may make his financial crisis even worse. This may also increase the loan repayment period. This means that the borrower will have to pay the loan for a longer period. The loan moratorium is recorded in your credit report. This may cause problems in getting a loan in the future.

Loan restructuring is a better option.

You should use loan moratorium only when there is no other option. It only provides temporary relief and eventually there is a risk of increasing your financial burden. You should talk to the bank for loan restructuring instead of loan moratorium. In this, you can tell your bank about your financial problem and request it to ease the terms of the loan or reduce the EMI. Banks often give concessions to the customer because they also do not want to let their loan go bad.

If the bank does not agree to reduce EMI or loan restructuring, you can also consider the option of transferring the loan to another bank. This can give you relief like new terms and lower interest rates.

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