Moratorium Period vs. Grace Period: Overview, Key Differences & Benefits

Planning for a study abroad loan this year? That’s great. With over 1.33 million Indian students studying overseas, education loans have gradually become a key part of planning for international studies.

But before you move ahead with your loan process, it’s important to understand some of the basic terms used in study abroad financing. You’ve probably come across words like the moratorium period and grace period. Most students assume these two mean the same thing — but they refer to very different stages of the loan timeline.

Having clarity on this can help you plan better and stay prepared for how your overseas education loan repayment will work once your course is over. So, it is time to get started with the necessary details.

We will begin by first understanding in detail about the moratorium period.

What is a Moratorium Period?

A moratorium period refers to a specific timeframe during which a borrower is not required to start repaying the loan. It usually begins once the loan is disbursed and continues through the duration of the course, along with an additional period granted by the lender.

In the context of study abroad loans, this period allows students to focus entirely on their education without the pressure of making repayments while studying. It is often seen as a student-friendly feature provided by most public and private financial institutions.

Example

For instance, if a student is pursuing a 2-year Postgraduate Course abroad and the lender offers a 6-month extension after the course, the total moratorium period will be 2 years + 6 months = 2.5 years. During this time, EMI repayment is not expected.

Having understood the moratorium period in detail, let us now move on to understand the grace period more clearly.

What is a Grace Period?

A grace period is the short period of time given to a student after the moratorium period ends and before loan repayment officially begins. It acts as a buffer phase to help the borrower prepare for repayment.

In study abroad loans, the grace period is intended to give students additional time to settle in, explore employment opportunities, and organize their finances after completing their course. It begins instantly after the moratorium period is over.

Example

Suppose a student finishes a 2-year Undergraduate Course and is offered a 6-month moratorium extension and a 3-month grace period. In this case, repayment will begin 2 years + 6 months + 3 months = 2 years and 9 months after the loan was disbursed.

With the concepts now clearly defined, it is time to examine the key differences in the moratorium vs grace period comparison.

Moratorium Period vs. Grace Period: Key Differences

Though commonly interchanged, the moratorium and grace period have distinct roles in an overseas education loan. The table below outlines their key differences to clarify how each stage impacts repayment.

Moving on to the benefits of the moratorium and grace period, and how they can help you during different phases of your loan repayment.

Benefits of Moratorium Period

The moratorium period provides several advantages that go beyond immediate relief, contributing to overall financial well-being.

Improved Cash Flow

During the moratorium, students are not required to make loan repayments. This allows them to maintain better liquidity, freeing up funds that can be used for other essential expenses, like living costs or tuition.

Opportunity for Financial Planning

This period gives students the chance to reassess their financial situation. Without the immediate burden of loan repayments, they can adjust their budgets and plans as needed.

Prevention of Loan Defaults

By pausing repayments, students avoid the risk of loan defaults, late fees, and penalties, which helps protect their credit scores.

How do the benefits of the grace period differ from the advantages of the moratorium period? Let’s take a closer look.

Benefits of Grace Period

The grace period offers a brief but important window for students to prepare financially before loan repayments begin.

Time to Adjust to Post-Graduation Life

The grace period gives graduates time to adjust to life after studies without the immediate burden of loan repayments. This period allows them to focus on securing employment and getting settled in their new environment.

Opportunity to Find Stable Employment

The grace period offers recent graduates time to secure a stable job or income source before having to start repaying their loan. This is especially beneficial for those who need to take time to find work in their field of study.

Avoidance of Penalties

While the grace period is in effect, borrowers are not penalized for late payments. This ensures that they don’t incur late fees or damage their credit score during this initial phase post-graduation.

Although the benefits of both the grace period and moratorium period may seem similar at first glance, a deeper analysis highlights significant differences in how they impact the repayment process for study abroad loans.

The differences and key features of these terms can be quite significant. That’s why understanding them is an important part of the loan application process. Similarly, there are other important terms related to study abroad loans that every aspirant should know to make well-informed choices.

At Élan Overseas Education Loans, we make it easy to understand all these details, ensuring you don’t feel overwhelmed. Reach out to our team, and we’ll help make your study abroad journey as smooth, flexible, and stress-free as possible!