Loan Moratorium: Your Friendly ‘Pause’ Button on Repayments in India

Hello, friend! Let us take a moment to consider your situation: You are paying your home loan EMI each month without fail, but what happens if an unforeseen event happens in your life? Maybe you lost your job as a result of the pandemic, or a medical emergency came up that you did not expect, or you were preparing for a family wedding and have spent all your savings. Eventually, it may seem like the monthly payment is so overwhelming that you cannot make any more payments. What do you do? In steps a moratorium on your bank loan—a similar concept to a pause button on making loan payments; however, it isn’t a free lunch or a way of erasing your debts, but it allows you to pause your payments to give you time to keep yourself solvent and avoid being in breach of the agreement.

In this blog, we will break down everything about loan moratoriums in a way as simple as chatting over chai. We will talk about what it really means, how it works for the regular Indians, its pros and cons, and when to hit that pause. Whether you are a young professional in Mumbai juggling a car loan, a family in Delhi with a home loan, or a small business owner in Bengaluru who has been hit by rising inflation, this guide is for you. Let’s dive in-no fancy terms, just straight talk.

What is a moratorium on loans?

Consider this: your loan is like a long drive where there is a lot of traffic. A moratorium is stopping at a rest stop to take a breather. You don’t delete that highway still lying before you, just take some time out to breathe again.

To clarify, the moratorium is a period of time (typically between 3 and 12 months) where you can stop making cash payments (EMIs) on certain types of loans, including home, personal, education, and business loans, that you have taken from banks or NBFCs in India. During this time, the lender has agreed to refrain from pursuing repayment from you or designating your account as a non-performing asset (NPA) that would cause your credit rating to go down.

However, it involves no magic – the loan’s amount isn’t simply wiped off. In fact, banks will add all the unpaid interest owed onto the original principal amount (originally borrowed), increasing either your monthly payment or extending your repayment schedule. Consider it as borrowing from your future self (time).

Moratoriums became a household name during the COVID-19 crisis. The RBI stepped in during March 2020 with an all-over moratorium within its COVID-19 Regulatory Package. Borrowers were allowed to skip EMIs for six continuous months, which was later. Millions of Indians, from salaried workers to farmers, used it to weather the storm. Even today, the RBI allows banks to offer moratoriums during crises, like natural disasters or economic slumps.

A Brief History: How Moratoriums Saved the Day for India

Moratoriums on loans are nothing new; these have been around since the global financial crisis in 2008. But they simply exploded during COVID-19. In fact, the RBI’s 2020 directive covered everything from retail loans, home, car, and personal loans to MSME loans, and even dues on credit cards. By May 2020, over 2.3 crore accounts worth ₹4.2 lakh crore availed of this lifeline as the nation went into lockdown.

The moratoriums did not go away even after COVID. RBI’s restructuring frameworks, like the Resolution Framework 2.0 of 2021, allowed the stressed borrowers a moratorium for as long as 24 months. In 2023, in response to rising interest rates and inflation, some banks provided moratoriums in a targeted manner for education loans during the pandemic recovery.

Today, in 2025, moratoriums pop up for specific events—everything from floods in Kerala to cyclones in Odisha. Under the Prudential Framework for Resolution of Stressed Assets, issued in late 2019, the RBI laid stress on moratoriums as the initial step before complete loan restructuring. To you, the borrower, it means that banks have to take a more holistic approach in evaluating your situation and not hit you with across-the-board penalties if it is genuinely required.

Real story time: Ravi from Narnaund in Haryana was a teacher whose side gig got killed by lockdowns. The ₹ 25 lakh home loan EMI of ₹ 22,000 was killing him. He took the 6-month moratorium from SBI. Accrued interest (about ₹ 66,000) got added to the principal, bumping his EMI to ₹ 23500 later. But it saved his home-no defaults, no CIBIL dip. Stories like Ravi’s show why moratoriums matter for middle-class India.

Moratorium on Loans: Which Kind Suits Your Life?

Not all moratoriums are the same, and banks offer a few flavours depending on your loan and situation. Let’s break them down simply.

1. EMI Moratorium (Principal Holiday)

This is the most frequent type. You stop paying both interest and principal during the moratorium period. The interest accrues in arrears and is added to your loan amount. At the end of the moratorium, options include:

• Higher EMIs to clear the extra faster.
• Extended tenure – such as from 20 to 22 years.

Example: Your ₹50 lakh home loan at 8.5% interest has ₹40,000 EMI. A 6-month moratorium adds ~₹1.2 lakh interest. Resume with ₹42,000 EMI or stretch the loan.

2. Principal Moratorium (Interest-Only)

Here, you pay only the monthly interest but skip repayments on the principal amount. Great option when cash is low, but you are trying to avoid large interest buildup. Common for education or business loans.

Delhi engineering grad Riya used this to her advantage for the ₹15-lakh education loan taken from HDFC. During her jobless period of six months, she paid ₹8,000 every month as interest, without touching the principal amount.

3. Bullet Moratorium (Full Pause)

The rare ones are seen in project loans or MSME financing. No payments whatsoever; everything due as a “bullet” payment later (principal + interest). Risky, only for those with a clear repayment plan.

4. Moratoriums Specific to Crisis

RBI-mandated ones during emergencies. In the 2024 Assam floods, for instance, banks offered moratoriums of 3 months to the affected farmers. No questions asked if you are in a declared disaster zone.

Pro tip: Check your loan agreement. Most of these mention moratorium clauses under “force majeure” or “restructuring.” Apps like ones by MoneyBuddha.in or bank portals make the process of applying quite smooth-just upload income proofs or hardship letters.

How to Apply for a Loan Moratorium: A Step-by-Step Process

Getting a moratorium isn’t rocket science. Here’s your no-sweat guide.

Assess your need: Do the Math on whether skipping EMIs benefits you. Online EMI calculators are available, which can be tried out at MoneyBuddha to calculate the post-moratorium impact.

Contact Your Lender: Call customer care or visit the branch. For big banks like SBI, HDFC, ICICI, or Axis, use their apps/portal. Say, “I need a moratorium due to job loss/illness/etc.”

Documents to be Submitted: Simple stuff-incoming proof, bank statements of the last 6 months, hardship letter explaining your story. In the case of the self-employed, add GST returns or business loss proofs.

Bank’s Review: They check if you’re eligible, such as no prior defaults and genuine stress. The decisions, as per the RBI rules, must be made within 30 days.

Get Approval: The agreement signed contains the details of the period, interest handling, and resumption terms. Follow up via SMS alerts.

Resume wisely: After that, negotiate if possible. One-time settlements are possible in some banks.

Time taken? 7-15 days usually. During COVID, it was an instant opt-in. Rejection? Appeal with more docs or switch to restructuring.

The Good, the Bad, and the Real Costs

Moratoriums sound dreamy, but they’re a double-edged sword. Let’s balance the scales honestly.

Advantages:

• Cash Flow Relief: This would release ₹20,000-50,000 per month for important expenses such as household groceries or fees for kids.
• Credit Score Safe: No NPA tag if RBI-approved. Your CIBIL remains intact.
• Legal Headaches at Bay: No recovery agents, no property auctions.
• Flexible for Indians: It covers 90% of retail loans, as per the data from the RBI.

Disadvantages:

• Interest Snowball: An interest moratorium of 6 months on ₹30 lakh at 9% accrues ₹1.35 lakh pure cost.
• Higher Future EMIs: The increase may jump 5-10% further, thereby straining budgets later.
• Opportunity Cost: Money saved now may not be available to invest in other alternatives, like mutual funds.
• Not for Everyone: Salaried with stable jobs might not qualify; Banks prefer “stressed” cases.

Actual math sans tables: Anil’s car loan of ₹40 lakh EMI is ₹35,000. 3-month moratorium adds ₹ 31,500 as interest (EMI’s interest portion x3). New EMI: ₹36,200. Worth it if he saves his job.

CIBIL impact? Minimal if you resume on time. But long use signals risk to future lenders.

Who Qualifies? Eligibility for the Average India

Does not make it elitist. Broad criteria:

• Retail Borrowers: Home, car, personal, and education loans up to ₹5 crore.
• MSME: Business loans if turnover is less than ₹250 crore.
• Stress Proof: incomes dropping by more than 10%, medical bills over three months’ EMI, etc.
• No Wilful Defaults: clean track record.

Special favours: women borrowers, senior citizens or rural folks often get precedence. In 2025, fintechs like Bajaj Finserv or Lendingkart offer digital moratoriums via apps—upload Aadhaar, PAN and done.

Success Stories: Moratoriums That Changed Lives

Let’s humanise this. Priya from Chennai, a single mom, faced husband’s job loss in 2022. Her ₹28 lakh home loan from PNB? A 9-month moratorium via RBI’s ECLGS scheme. She used saved EMIs for her kid’s school fees. Today, she is back on track, EMI adjusted at ₹24,000.

Or take the case of farmer Raju from Punjab. The 2023 floods ruined his crop loan from Canara Bank. 6-month moratorium + interest subvention from the government meant no suicide scares—just recovery time.

These are not rarities. RBI reports 70% of moratorium users resumed payments successfully.

Alternatives If Moratorium Isn’t Right

Not sold? Smart options exist:

• EMI Restructuring: Lower EMI, longer tenure—no pause needed.
• Partial Prepayments: Use bonuses to cut principal.
• Balance Transfer: Switch to lower-rate banks (e.g., SBI to Union Bank).
• Govt Schemes: PM SVANidhi for street vendors or Atmanirbhar for MSMEs.
• Fintech Help: Apps like Paytm or PhonePe offer short-term top-ups.

Chat with a financial advisor—free ones at bank branches or via MoneyBuddha, in tools.

RBI has rules to protect you when you borrow 

Money. Banks have to be clear about their terms and can’t hide charges. They also can’t push you; you have to agree to things. If you have a problem, you can complain to the bank’s officer or through RBI’s Sachet site. Most loans now can only be paused for up to a year. Banks need to tell you how much the loan will cost overall before you agree. If someone cheats you, take it to the Banking Ombudsman—it’s quick and free.

In conclusion, 

Consider all options before placing a hold on your payments. Stopping your loan payments will allow you time to recover from a difficult financial circumstance. You will receive assistance from this benefit so that you can get his or her life back together and not abandon your obligations completely. Many individuals have been able to retain their homes and vehicles after being unemployed or sick due to the help they received from pausing their payments. Just remember, this is a way to maintain your obligations temporarily. Utilise this tool as part of a larger strategy for the future and ensure that you establish a realistic budget. You may also find additional sources of income to support your recovery.

If your money takes a hit, don’t panic—pause payments wisely. Talk to your bank today, keep up with news from the RBI or money blogs, and save up an emergency fund to cover at least six months of expenses. You can do it! Got questions? Ask away!