Moratorium Period vs. Grace Period – These two terms may look similar but there are key differences between Moratorium Period and Grace Period. It has become very common to take advance or loan from bank or financial institution. Repayment of the loan amount is done mostly in form of Equated Monthly Installments (EMIs). EMI include repayment of principal amount and interest charged is calculated with interest charged on the principal amount.
Key differences between Moratorium Period and Grace Period
Moratorium Period
When we avail loan from bank, EMI don’t start immediately. There is always a time period or gap after which the EMI starts. That period is known as moratorium period.
In Simple words, Moratorium period is basically a period during which you enjoy a holiday from your EMIs. It is also known as holiday period.
The main objective behind the lender offering moratorium period is to help you plan your finance better during that period. However, Interest starts accumulating even though EMI don’t start.
During a moratorium period, borrower is not required to make any repayment.
Moratorium period is decided by the lending institution as per the credibility of the borrower.
Example – A student take education loan, he/she doesn’t have to start making repayment (EMI) immediately. Repayment starts after completion of study. Interest is calculated for that moratorium period and EMIs are paid accordingly.
Grace Period
Grace Period is time gap or period when a credit card billing cycle ends and when the payment is due.
In Simple words, it is a time period after a payment becomes due.
Unlike Moratorium Period, Grace period is an interest free time period that gives you several days clear the dues without charging interest during that period.
Interest is not charged if outstanding dues are paid before the grace period ends.
For example – In case of insurance premium, a grace period is given during which you can make the payment of premium. In case you fail to pay the premium and grace period expires, it leads to penalty or late fees.
Also in case of credit card, when the bill is generated, you are given a grace period of 20-21 days to make the payment. If bill remain unpaid, interest is charged according to institution’s lending policy.
