Summary: In case one is looking forward to applying for a loan from a lender, be it for personal or for commercial purposes, they need to make sure that they are aware of the terms moratorium period and grace period. When a borrower is familiar with these terms they can take the necessary steps to make the repayment process a seamless one.
Moratorium period is the technical term for the time frame where the borrower doesn’t need to pay the EMIs to the lender. It was introduced by financial institutions to assist borrowers who are undergoing financial distress. The purposeful delay in repayment period is interest charged. Meaning even if the borrower doesn’t need to pay the EMI, interest is added on the EMIs. The borrower can either choose to repay the same instantly or opt to pay the same through larger EMIs later on.
In simple terms, moratorium period is the time between the loan amount is handed over to the borrower and when the borrower makes his first repayment of the loan amount in the form of an EMI. It should be kept in mind that interest is charged by the lender during the course of the period. On top of that, the period comes with its fair share of terms and conditions that varies with the lending institution.
Grace period, on the other hand, begins soon after the loan term for the borrower is completed and when the repayment of the debt is to be initiated from the borrower’s end. It should be kept in mind that grace period is interest-free. That being said, the lender issues a gentle reminder to the borrower after around twenty to twenty-five days after a notice is issued to the same for repayment of the loan amount so that they can avoid a case of default.
Since grace period is interest-free most of the time, borrowers make sure that they have repaid the lender the loan amount as the time frame is limited when compared to that of moratorium period.