Moratorium

Normally, missing an EMI is a default. It is reported, it damages the credit score, and the lender can act on it.

A moratorium is a period in which repayments on a loan are stopped temporarily because of extraordinary factors — force majeure or tough conditions such as a crisis, a war or a similar situation. Under a moratorium there is a pause and no default is counted, so it does not affect the credit score and credit history of the borrower.

What it is not is a waiver. The workbook's central warning: the interest meter continues during the moratorium, so the borrower's dues keep increasing. The EMIs missed are pushed back and must be repaid with the additional interest.

Three things happen together during a moratorium:

1. No EMI is paid, and the non-payment is not a default.
2. Interest continues to accrue on the outstanding balance — with compound interest, as the workbook notes of the Covid moratorium.
3. The missed instalments are pushed back, to be repaid later along with the extra interest.

The workbook's real case. Banks and financial institutions gave borrowers several months of moratorium following the Covid outbreak. Many consumers assumed the EMIs for that period were being done away with, without realising that the meter was still on.

How the extra interest comes back. Once repayments resume, the larger balance has to be recovered through either a higher EMI or a longer tenure. The choice mirrors the one the workbook discusses for floating rate loans when rates change: keep the EMI and extend the tenure, or change the EMI.

Contrast with pre-EMI interest. Pre-EMI interest is an interest-only payment while a loan is not yet fully disbursed; under a moratorium nothing is paid at all.

Contrast with a loan restructuring. Restructuring changes the loan's conditions for a borrower under financial stress; a moratorium is a temporary pause for extraordinary factors.

Illustrative figures.

Meera has a home loan with Rs 30,00,000 outstanding at 9%, with 240 monthly EMIs of Rs 26,992 remaining. Her lender allows a three-month moratorium and she takes it.

Monthly rate           = 9% ÷ 12 = 0.75%
Balance after 3 months = 30,00,000 × (1.0075)^3 = Rs 30,68,008
Interest added         = Rs 68,008

She has paid nothing and her loan has grown by Rs 68,008 — slightly more than the Rs 67,500 simple interest would give, because the interest was compounding.

When EMIs resume, she chooses between:

Either way, the three "free" months are paid for. Her credit score is unaffected — that part of the protection is real — but the Covid-era assumption that the missed EMIs had been done away with is exactly the misunderstanding the workbook warns about.

Chapter 4 (Debt Management and Loans), section 4.7.10, among the loan terms in 4.7 alongside pre-EMI interest (4.7.9), prepayment (4.7.8) and refinancing (4.7.7). Expect a statement-type question: during a moratorium, is the EMI waived (no), does interest accrue (yes), is it a default that hits the credit score (no).

• A moratorium is a pause, not a waiver. Missed EMIs are pushed back and repaid with additional interest.
• Interest keeps accruing — compounding — so the outstanding balance rises.
• It is not a default and does not affect the credit score or credit history.
• It is triggered by extraordinary factors — force majeure, crisis, war — not by a borrower's preference.
• Do not confuse it with pre-EMI interest, where interest is paid but principal is not.
• An education loan's deferred repayment is a different feature: repayment usually starts after the course ends or when the student starts earning, whichever is earlier, with interest accumulating meanwhile.