EMI Moratorium Explained: RBI Rules & Hidden Costs

Borrowers often view a loan moratorium as a financial relief switch—pause EMIs now, breathe easy, resume later. In reality, the decision is more nuanced. While the Reserve Bank of India (RBI) allows lenders to offer payment relief during defined stress periods, the cost of postponement is rarely zero.

This guide breaks down EMI moratorium rules from an Indian borrower’s lens, explains how interest quietly builds up, and helps you decide whether opting in genuinely helps or simply delays the burden. Instead of repeating basic definitions, this article focuses on what really changes for your loan account.

RBI’s Role: What the Guidelines Actually Permit (Myth vs Fact)

Myth: RBI forces banks to stop EMIs during crises.
Fact: Under the RBI guidelines for EMI moratorium, lenders are allowed—not mandated—to offer repayment relief during exceptional circumstances like pandemics or economic shocks.

RBI frameworks typically:

• Allow temporary suspension of principal or full EMI.
• Leave implementation to individual lenders.
• Clarify that interest continues to accrue unless waived explicitly.

This distinction matters because many borrowers assume EMI pauses are free benefits rather than structured deferrals.

What Really Happens During an EMI Moratorium

People think that when Equated Monthly Instalments are frozen, the loan balance does not change. This is a myth.

Fact: During an EMI moratorium, interest continues to accumulate on the outstanding principal.

In most retail loans:

• Interest is added monthly.
• Total repayment amount increases.

This is why EMI with a moratorium often appears helpful in the short term but can become more costly in the long term.

Understanding Interest-on-Interest

Let’s simplify the most misunderstood aspect.

Example: ₹30 lakh home loan

• Interest rate: 8.5% p.a.
• Tenure: 20 years
• Monthly EMI: ~₹26,035

6-Month Moratorium Impact

This additional amount comes from moratorium interest, which keeps accumulating quietly while payments pause.

Does EMI Increase or Does Tenure Extend?

Myth: Moratorium automatically increases EMI.
Fact: Lenders usually give two options after a loan EMI moratorium:

More Myth vs Fact: Common Borrower Beliefs

Hidden Costs Borrowers Often Miss

1. Higher Total Loan Cost

A short break from paying back a loan can still increase the total amount of interest you have to pay over the life of the loan. Short moratoriums really do raise the lifetime interest on your loan.

2. Delayed Principal Reduction

When you start paying EMI after a pause, the money you pay will mostly go towards the interest that has built up and cover the accumulated interest first.

3. Reduced Refinancing Benefit

When you have an outstanding balance, it may make it harder for you to negotiate in the future. Having an outstanding balance really can weaken your negotiation power.

4. Psychological Comfort vs Financial Cost

Relief today often means pressure tomorrow. The short-term relief may be much-needed, but it can raise the total repayable amount.

Current Context: Should Borrowers Still Be Alert?

It is important ot keep up with the latest news on EMI moratorium so that you can make informed financial decisions.

Latest News:

• RBI is evaluating fresh relief measures for exporters after a previous loan repayment deferral saw low take-up, especially among those affected by U.S. tariffs on Indian exports. The moratorium on term loan repayments introduced in 2025 had less than 20% uptake due to strict eligibility criteria. Authorities are now considering easing those eligibility rules or offering new subsidised credit support to provide effective relief.
• During the COVID-19 crisis, the RBI permitted temporary 3-month and extended 6-month moratoriums on EMIs, with banks allowed to defer both principal and interest payments to ease borrowers' stress.
• After moratorium periods ended, borrowers were urged to proactively engage with lenders to manage EMIs and avoid classifying loans as non-performing assets (NPAs).
• In 2020, RBI extended the initial moratorium up to August 31, 2020, allowing borrowers more time but also highlighting higher interest burdens if EMIs weren’t paid on time.

Who Should Consider a Moratorium?

Borrowers facing the following circumstances can opt for a moratorium:

• Income disruption due to job loss or medical emergency.
• Temporary cash-flow mismatch, not permanent income loss.
• Prioritising essential expenses (medical bills, rent, education) over loan repayments during hardship
• Short-term loans where the impact is manageable.

Who Should Avoid It?

It may not be the right choice for the following individuals:

• Salaried individuals with stable income.
• Borrowers early in long-tenure home loans.
• Those aiming to minimise lifetime interest.

In many cases, continuing EMIs, even during difficulty, costs less than pausing them.

Final Word

An EMI moratorium is a financial tool that borrowers should use well-informed. The real risk lies in opting for it without understanding how interest compounds and alters long-term repayment. Do a quick search on “EMi moratorium news today” when you consider taking a pause.

At My Mudra, borrowers can access transparent loan guidance, EMI structuring support, and refinancing assistance designed for Indian financial realities. Whether you are managing an existing home loan or exploring smarter repayment options, My Mudra helps you compare choices clearly, before hidden costs creep in.

Also Read:
- What Is Moratorium Period in Loans? (2026 Updated)
- How to Budget Effectively When You Have Multiple Loans