When it comes to studying abroad, education loans are at the top of the list. In India, education loans are designed to be in the favour of students and hence these loans are given at a lower interest rate. You can even take them without a collateral and yes, they come with a moratorium and a grace period. The moratorium and grace period are the two main features of an education loan that decide your interest rates and EMIs. But often, these two features are confused to be the same! Actually, the grace period vs moratorium period plays different roles. It’s highly important to learn about their differences to plan your financial capability. This blog will compare both of these for you!
What Is A Moratorium Period In Education Loan?
Moratorium period is, in simple terms, your study duration. During this time, you utilise the loan amount for fees, study materials, and other educational expenses. During the moratorium period in education loans, you don’t have to repay the loan amount. Generally, moratorium is taken as all inclusive – course duration + grace period.
What Is A Grace Period In Education Loan?
The grace period in education loan is a short period granted after your main course completion you took an education loan for. The grace period can range between 6-12 months depending on your bank loan terms. After the grace period ends, your EMI repayment starts. Grace period is especially meant for students to get employed and become financially strong to repay the loan amount. Hence, this period spans 6-12 months for you to get a job and settle down a bit.
Generally, the moratorium period is understood to be all-inclusive (course duration + grace period). Hence, students often tend to get confused between the two, even if they have the same meaning. Grace periods may or may not accrue interest, depending on the terms of the loan.
Key Difference Between Grace Period & Moratorium Period
Even though these two terms are understood to be one, there are some notable differences between them. The table below shows how these terms differ in terms of purpose, repayments and more:
| Grace Period Vs. Moratorium Period Overview | |
| Grace Period | Moratorium Period |
| Typically occurs after graduation or leaving school | Can occur at various stages, such as during a financial crisis. |
| Borrower may not have to make payments on the principal amount | Borrowers may have to pay interest during the moratorium period. |
| during this time, but interest may still accrue. | Payments for both principals and interest may be deferred. |
| Purpose is to allow borrowers time to find employment and establish financial stability before starting loan repayments. | Provides temporary relief for borrowers facing financial difficulties, allowing them to postpone loan repayments. |
Moratorium Period Vs. Grace Period Benefits
As mentioned earlier, education loans work in the favour of students. For other types of loans, for example, personal loans, the moratorium period is not available, and the repayments start immediately after the grace period, which is even shorter than what you get in the education loans. Given below are some of the benefits of both:
| Moratorium Period | Grace Period |
| Provides temporary relief during financial crises. | Offers transition time for borrowers after graduation or leaving school. |
| Allows borrowers to postpone loan repayments. | Provides financial relief by deferring payments on the principal amount. |
| Payments on both principal and interest may be deferred. | Interest may still accrue during the period, but borrowers can focus on immediate financial needs. |
| Helps borrowers facing financial difficulties. | Opportunity for loan consolidation or refinancing. |
| Can be implemented during times of economic hardship. | Allows borrowers to build a positive credit history by managing finances responsibly. |
Conclusion
So, from this blog, I hope it’s clear that a grace period or moratorium period have their own benefits and roles to play in an education loan. The larger the grace period, the more breathing space you get to have a job, earn, and pay EMIs. However, it is a best practice to make use of your moratorium period to save or invest your pocket money to create a safety net in case of financial hardship. You can even utilise your moratorium period to take up a few internships and save for at least 2-3 starting EMIs to ease the financial burden even more! There are always smart ways, you should be able to figure them out.
FAQs
Q1. What is the difference between a grace period and a moratorium period?
The moratorium period is the course duration wherein you need to pay simple or partial interest, however a grace period is the duration after you complete your course specifically given to get employed before your repayment begins.
Q2. How do lenders typically define a grace period and a moratorium period?
Lenders typically define a grace period as a specified period after loan disbursement during which borrowers are not required to make payments, often occurring after graduation. A moratorium period is defined as a temporary suspension of loan payments, usually due to financial hardship, with interest accruing during this time.
Q3. How does interest accrue during a grace period versus a moratorium period?
During a grace period, interest may accrue but typically does not require immediate repayment, while in a moratorium period, interest accrues and may or may not require repayment.
Q4. How long do grace periods and moratorium periods typically last?
Grace periods typically last for around six to nine months after graduation or leaving school, while moratorium periods vary but can range from a few months to several years, depending on the lender and the borrower’s circumstances.
Q5. Do grace periods and moratorium periods impact credit scores or credit reports?
Grace periods generally do not impact credit scores or credit reports, as they are typically a standard feature of loan agreements.
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