What is EMI Holiday?

By : Neha Dhyani

Updated : May 20, 2022, 11:55

An EMI Holiday is essentially the same concept as a moratorium period on your loan. This period, or holiday, as some banks call it, refers to the time that is between a loan period where the debtor or the borrower is not required to make payments to the creditor towards his loan. In simpler terms, it is the grace period until the repayment of the EMI continues.

Factors to an EMI Holiday

To properly understand the concept of an EMI Holiday, let us explore what an EMI is in the first place. EMI's, or Equated Monthly instalments are equally divided monthly payments that are made to clear an outstanding loan within a stipulated time frame.

There are several factors to an EMI that include -

  • The principal borrowed amount
  • The Rate of Interest
  • The Tenure of the loan
  • Monthly resting periods

Components Affect EMI Holiday

All these components come into play to affect how an EMI works, and what we're focusing on are the Monthly resting periods, better known as EMI Holidays.

Taking a certain period of EMI Holiday for the repayment of your loan means that you don't have to start repaying your loan immediately after it gets granted to you. Under most regular circumstances, default on paying EMI can greatly impact your credit score and make finding loans more difficult for the borrower.

With availing of an EMI Holiday, on the other hand, you can instead pay your EMI after a break period. Generally, such offers are granted by banks on large sums of loans to help debtors plan out their repayment process better so they can functionally meet their dues. Home loans, which generally involve large sums of money, and Education loans, where there is usually a large time frame before a student can properly take up loan repayment, are prime examples of areas where EMI Holidays are common.

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Generally, taking an EMI Holiday is not recommended for debtors who have the necessary liquidity to pay off their loans. This is because in most cases, the interest amount will continue to accrue to the loan amount and the overall burden on the buyer will continue increasing even during the resting period. On the other hand, an EMI Holiday is a great measure for borrowers to avail themselves when they're going through a time when liquid money is not readily available to them.

EMI Holidays are also common measures during periods of crisis where normal routines are disrupted and the economy becomes unstable. In such cases where the people's incomes are in disarray, an emergency moratorium is announced by the central bank to lift the burden off the general public and corporate borrowers who are going through periods of low liquidity.

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Example of EMI Holiday

A prime example of this is the 3-month EMI Holiday the Reserve Bank of India announced all over the country to relieve the financial woes of the public during the beginning of the pandemic.

Summing up, EMI Holidays, also known as monthly resting periods or loan moratoriums are a period offered to borrowers during which they are allowed to default on their monthly loan repayments towards their loan amount. They offer relief to debtors who are left without liquidity but generally should not be availed by those who can afford to make the payment as the interest amount still accrues during this period.

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FAQs on EMI Holiday

Q 1. What are the benefits of an EMI Holiday?

Ans. EMI Holidays give time for the borrower to plan out their repayment schedules and organize their finances accordingly.

Q 2. When should I opt for an EMI Holiday?

Ans. You should opt for an EMI Holiday when your liquid cash reserves are low, and the future burden is manageable to repay with time.

Q 3. Do EMI Holidays reduce the amount to be repaid?

Ans. No. EMI Holidays are structured to include the principal amount along with the interest that is accrued over the period.

Q 4. Do EMI Holidays affect my credit score?

Ans. No, EMI Holidays do not affect my credit score, as the grace period is accounted for by the creditor and debtor.