Among the essential terminologies of education loan for abroad studies, students are required to understand the meaning of the term moratorium and its importance in education loans. The lender allows students a moratorium period during which they are not expected to repay the principal amount of their student loan for study abroad. The moratorium period is inclusive of an additional 6 months, or 1 year, as provided by the lender to the student after completion of studies in order to find a job. Repayment of the principal amount of the education loan begins after this moratorium period.
What is the moratorium period on education loans?
A moratorium period in education loan for abroad studies is a legally authorised period by the lender during which the borrower is exempted from loan repayment. During this period, the lender exempts the student from making any payment towards the principal amount of the loan. This period is the interval time, or we can say a break from interest or loan repayments. By providing the moratorium period, the lender grants some months or a year to the borrower to find a job based on the education loan abroad scheme.
Benefits of the Moratorium Period in Overseas Education Loans
Student loan for study abroad, if not paid on time, will soon become a burden rather than financial aid. The moratorium period is a beneficial time to efficiently plan for your loan repayment, and you can use this time to find a job. The moratorium period comes with the following advantages, as mentioned below:
- Reduces the financial burden: Loan repayment is difficult during the study period. The moratorium period serves as an advantage for students, as they get some additional time to make arrangements for loan repayment without any stress.
- Time to make an efficient plan: Loan experts rely on the importance of planning for loan repayment. Planning is considered efficient for debt repayment.
- CIBIL Score remains unaffected: Despite no repayment in the moratorium period, borrowers will not become loan defaulters, and their CIBIL score will remain unaffected, even if they are not paying any dues in this period.
- No financial burden on the co-applicant: Not only the applicant, but their parents, who have become co-applicants with them in the loan agreement, also remain free from loan repayment during the moratorium period. This means that even co-applicants are not required to pay anything for the principal amount of the study abroad loan.
- Extension in the moratorium period: There are chances for some extension in the duration of the moratorium period by your lender.
- No fine for non-payment: Loan beneficiaries will remain free from any kind of fine or penalty in case of non-payment of EMIs. During the moratorium period, you have ample time to accumulate the money for upcoming loan EMIs and save for other necessities.
- Relaxation for students: A loan moratorium is quite beneficial for students going through some tough financial times. Students who are doing part-time jobs and getting less pay are likely to benefit from the moratorium period, as they will get some additional time to repay their loan amount.
Difference between the Moratorium Period and the Grace Period
Students often confuse the terms "grace period" and "moratorium period" because they mistakenly believe they have the same meaning. However, both terms are completely different and have their own relevance to the overseas education loans.
- In a moratorium period, the borrower is not obliged to make any payments regarding the loan amount. The lender may charge the interest payment in the form of simple or partial interest. Other than this, no payment will be required during a moratorium period.
- During the grace period, borrowers are required to pay the outstanding loan amount without any penalty. The outstanding payment refers to the balance amount that borrowers must pay within the grace period.
- The length of the grace period is usually shorter than the moratorium period. It lasts only up to 15 to 20 days, whereas the moratorium period is longer than the grace period. The grace period lasts up to 6 months or 1 year, depending on the policy of the lender.
Drawbacks of the Moratorium Period on Education Loans
There are some general drawbacks to the loan moratorium period. Several times, the moratorium period has been misunderstood as a waiver of interest payments, and somewhere it will result in increasing the duration of the loan term.
- Interest Accumulation: Interest will accumulate once the moratorium period comes to an end. Interest will not be waived; the interest payment that you have not paid during the moratorium period will be deferred. The borrower will have to pay it after the beginning of the loan term.
- Burden of Increased Interest Amount: A moratorium is considered a form of relaxation, but only on a temporary basis. All the interest and EMIs not paid during this period will accumulate in the later stages and will put a burden on the borrowers to pay increased interest and loan payments.
- Extension in Loan Tenor: The moratorium period will lead to an extension in the duration of repayment tenure. It may affect the long-term financial goals of the borrowers. A borrower who wishes to repay their debt in a short span of time can ask their lender to make the payment during the moratorium period as well.
Moratorium Period by Different Lenders
In India, education loan abroad providers fall into different categories: public and private banks, and NBFCs. Based on the type of loan they provide, education loans have different repayment policies. Let’s have a look at the moratorium periods provided by different lenders:
- NBFCs: Private lenders like NBFCs offer a moratorium period of 6 to 12 months. However, a borrower may have to pay simple interest during this period. They are exempt from the payment of the principal loan amount, not from interest. These lenders may also take partial interest from the borrower, depending on their payment capacity. In partial interest, the borrower will pay 1/4th or 2/3rd of the actual interest payment. However, the remaining amount will be added to the principal loan amount. Instalments of some part of the principal loan amount will start after the moratorium period.
- Public Bank: Government banks provide a moratorium period that lasts up to 6 months or 1 year, depending upon the education loan policy of the bank. Students are not required to make any payments during this period.
- Private Bank: The moratorium period by a private sector bank also lasts up to 12 months. In this case, the borrower will pay the simple interest payment during the moratorium period. Instalments of the principal loan amount will begin after the completion of the moratorium period.
Conclusion
To pursue higher education abroad, finances should not be an obstacle. To remove this hurdle, banks and NBFCs have come to your rescue. Students who are looking for education loans can contact Education Loan Guru. Education Loan Guru provides expert guidance to students on overseas education loans and ensures their smooth and hassle-free journey.
