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Moratorium Period VS Grace Period

Taking credit from a bank or any other lending institution is very common now-a-days. The payment is done back mostly in the form of monthly EMIs which are calculated with interest charges on the principal amount credited. When one takes a loan, he is given some period before starting paying his EMIs.

The two terms: Moratorium period and Grace period though look to be the same, are different in the following contexts.

Moratorium period:

  • When we take a loan from bank, we do not have to start paying the EMIs immediately. The bank gives some time before start paying EMIs which are generally paid on a monthly basis. This time before start of paying EMIs is called Moratorium period.
  • So a moratorium period is a time during the loan term when the borrower is not required to make any repayment.
  • Example: when one takes an Education Loan, he/she does not have to pay the EMIs from the start; the payments are started after the completion of studies. The interest is calculated for the moratorium period and then EMIs are paid accordingly.
  • Other loans, be it vehicle or home loan also provide some moratorium period, though a short period like a month or two.
  • Different lending institutions have their own interest charges.
  • Lending institution can also provide the facility of payment of EMIs in the moratorium period, which will give an advantage to the customer of concessional interest rate.

Grace period:

  • The name suggests its meaning, that giving some time before paying off dues.
  • Unlike moratorium period, during the grace period, interest is not charged.
  • Actually it is a period of time after a payment becomes due.
  • Example: One gets a time period before which insurance premiums are to be paid, this is called grace period. After the grace period gets over, one is subject to pay the penalties or late charges.
  • Grace period is also given for paying off the overdraft value of credit card. If the money is not paid back within the grace period, interest rate is charged according to the lending institution policy.
  • If you pay off the entire balance of the bill during the grace period, then the money you borrowed is like a free loan, because you are not paying anything for the privilege of using it. 

Difference between Grace period and moratorium period:

The differences are that a moratorium period is much longer than a grace period and interest may be charged during it. If a lender offers a grace period, it is automatically extended to all customers

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