What is the Moratorium period, and which Lenders Provide the Moratorium Period?
With college costs skyrocketing, parents and learners have no choice but to take out an
education loan to pay for their studies. However, the tuition price may soar far more for students who want to attend prestigious colleges for a top-notch education. These factors make banks a common source of financial aid for families and students. Banks typically provide students a grace period during which they are not required to pay back the finance lender since the student must reimburse the loan. In the sphere of education loans, this is recognized as the moratorium period.
This post will go over every edge of the moratorium period for student education loans and how they can finance a bright future!
What is the Moratorium Period?
The time when the borrower is exempt from loan repayment is known as a moratorium period in the context of education loans. Normally, loan repayment or EMI payments begin soon after the borrower accepts it; however, during the student loan moratorium period, lenders permit borrowers to begin loan payments once they complete their degree and earn money. The moratorium period, which is often the length of the course plus six months or a year, allows the lender to give the student enough time to organize their resources and make necessary preparations for loan repayment.
For the duration of the loan moratorium, banks often charge interest, which is later added to the principle. A lender determines loan interest using a simple basis because interest typically accrues over the moratorium period. Therefore, students who want to begin making EMI payments (equated monthly installments) can do so during the moratorium period because doing so will ultimately help them reduce their interest payments.
Positives of a Moratorium Period
The following are some of the biggest benefits to which a borrower is entitled if they choose to comply with the loan moratorium—
● EMI Payment Relaxation
As the moratorium period typically lasts for your course term plus six months or can last up to 1 year, students are given a break from monthly EMI payments. Therefore, during this time, students are excused from their financial obligations for a year and are not needed to pay EMIs.
● No Impact on Credit Rating
The student's credit score won't be impacted in any way. Students can raise their CIBIL score and credit history by making timely loan payments.
● No Fines for Non-payment
The bank does not charge any fines for non-payment during the moratorium period. Students may extend their loan moratorium term by up to 12 months if they cannot obtain employment after their course time.
Lenders Providing the Moratorium Period
The Reserve Bank of India (RBI) decreed that education loans would be given to students from all socioeconomic groups. The RBI designed a modal educational loan scheme while considering the financial constraints that eligible students desiring to pursue studies overseas face.
Under this plan, the students would receive a moratorium before their payback begins. A payment-free moratorium period is provided to the students by all public banks and some commercial institutions. Certain RBI-approved lenders grant a moratorium period to eligible students and give them a convenient time frame to repay. Commercial lenders (private banks and NBFCs) provide a grace period for repaying student loans like government banks. However, unlike government banks, this is not a debt-free period. Throughout the moratorium period, these lenders allow partial interest payments.
This is known as partial payment when students are permitted to pay the interest accrued during the moratorium period in proportion. This means that, depending on their regulations, private banks and NBFCs will only accept between Rs. 4000 and Rs. 5000 if you cannot pay the Rs.10,000 per month in EMI payments during your loan moratorium. Authorized Private banks and financial institutions may even demand full payment on the given interest rate during the moratorium period, depending on the student profile. This provision is subject to their regulations regarding the repayment of student loans set by RBI.
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