What is moratorium, what does it mean, what is its impact

Now a day, the word moratorium is getting hike. Due to the covid19 impact on the economy this word got popularized.

Definition of moratorium

Moratorium means a type of vacation provided by the bank. If you are paying EMI or installment for any loan and you get some relieves or vacation regarding the repayment of EMI. Let us understand with a moratorium example- suppose you have a loan and you are paying the installments regularly. When there is a relief from the bank side is provided regarding repayment for some months or even years. This period of relief regarding the repayment is called a moratorium. In simple words it moratorium means that the period or duration in which you don’t need to pay the EMI. One thing regarding the loan or debt moratorium must be explained that the interest will not stop it will work as it was working.

The English meaning of moratorium is emblem or embargo. It is given by government authority. This scheme is provided by the authority when there is an obstruction observed in the national or international economy. This period can also be referred to as an installment holiday because you are exempted from paying the EMI during the period.

Debt moratorium

It is period of delay or obligation in repayment of debt. It is mainly offered by seeing the national interest and economy. Only the government has the authority to provide this facility. A moratorium is generally not allowed by the banks or lending authority. But, due to the involvement of government authority they have to do so. Banks or lending authority usually wants their money back within the time allotted by them to the customer. This is for the first time when the Indian government provided this facility. Some countries like Pakistan, Peru, Russia, etc have done this twice.

The economy of a country mainly got affected by war and natural calamity. In this era, a huge population suffers an economic loss so the facility of loan moratorium has been used.

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This is done to give relaxation among the public. The society has many small scale industries. These industries get loans from banks or financial institutions. But due to the economic crisis, their working stopped. Due to this, they are unable to pay the loans. So this facility provided by the banks to facilitates them.

What is moratorium, what does it mean, what is its impact
Moratorium Image Source: personal-finance.in

We know that industries have a large number of workers. They work and get a salary. But when the industry will stop working then the salary will stop so they will be unable to pay the debt. By seeing this condition the government also facilitates them under this circumstance. So debt moratorium is provided to the public.

The debt moratorium or loan moratorium is provided mainly to strengthen the public and country economic conditions.

The RBI has announced this facility up to the 31st August. All the banks have to follow them. Many banks will automatically provide this facility to the customer. If the customer has a regular repayment record from previous time but unable to pay the EMI during the period of March to August. Then they would be automatically comes under loan moratorium.

Does the debt moratorium is worth?

Yes, it does. It is very helpful for those who are not in a position to pay the EMI. But remember one thing. If you are in position or capable of paying the EMI your job not got much affected then try to pay it. As it is explained earlier that the interest will be independent of this facility and it will keep increasing. But it can be very helpful for those, whose earning stops or minimized due to salary cuts. Many industries are paying half of the salary to their workers during this lockdown era. Due to this salary slash, they are not capable to pay the EMI. SO debt moratorium can play a vital role for them.

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If you are able to continue the repayment of EMI then please do it. It will be not only beneficial for you from a loan but also help the country’s economy.

SACHIN AHIRWARhttps://personal-finance.in/
Hey, I’m Sachin. I’m a Blogger living in India. Guide for Personal Finance Planning & financial planning, Tax, Investment, Managing Money, Insurance, Retirement, Real Estate and Loans & more.

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