EMI Holiday

Loan & Credit

EMI Moratorium / EMI Holiday

A temporary pause on loan EMI payments granted by a lender for a fixed period, typically at the start of a loan or during financial hardship. Interest continues to accrue during the holiday and is added to the outstanding principal.

Definition

An EMI holiday (also called a loan moratorium or deferral) is a temporary period during which a borrower is permitted to pause their regular EMI payments. Despite the name, it is not a "holiday" in the true sense, interest continues to accrue on the outstanding principal throughout the pause period.

The accrued interest during the EMI holiday is either capitalised (added to the outstanding loan principal, increasing future EMIs) or paid separately. This means an EMI holiday defers the pain of repayment without eliminating it, and typically makes the loan more expensive in total.

Formula

Interest accruing per month during holiday = Outstanding Principal × Monthly Interest Rate

New outstanding after n-month holiday = Outstanding + Σ Monthly Interest (compounded)

For a ₹50 lakh loan at 8.75% per annum:

Monthly interest = ₹50,00,000 × (8.75/12/100) = ₹36,458
After 3-month holiday with compounding: approximately ₹1,10,000 added to principal

Worked Example

You have a ₹40 lakh home loan at 9% p.a. with 180 months remaining. EMI = ₹40,580.

You take a 3-month EMI holiday due to a job change.

Interest accrued during holiday = approximately ₹90,000 (compounded)

New outstanding = ₹40,00,000 + ₹90,000 = ₹40,90,000

New amortisation (same 180 months remaining, new EMI at 9%):

New EMI ≈ ₹41,490 (₹910 more per month)
Additional interest over full tenure ≈ ₹1,63,800

For 3 months of ₹40,580 relief (₹1,21,740 total) you ultimately paid ₹1,63,800 extra. Net cost of the holiday: ₹42,060 in additional lifetime interest.

Use the home loan EMI calculator to model how an EMI holiday changes your loan trajectory.

Key Things to Know

Interest-only period (pre-possession loans): Many home loans for under-construction properties have a mandatory EMI holiday (interest-only period) until possession. During this period, you pay only the interest on the disbursed amount, not the principal. The full EMI begins only after possession, this is different from a crisis-related EMI holiday.
Education loan holiday: Education loans typically come with a built-in moratorium covering the course duration plus 6–12 months after completion (to allow the student time to find employment). Interest compounds during this period and is added to the principal before EMI repayment begins.
COVID-19 moratorium precedent: During 2020, the RBI permitted all banks to offer a 6-month loan moratorium. Borrowers who availed it saw significant interest capitalisation, the Supreme Court mandated that compounded interest (interest on interest) be waived, but the underlying deferred interest was not. This is the most recent large-scale example of a loan moratorium in India.
vs prepayment: An EMI holiday and prepayment are financial opposites. A prepayment reduces outstanding principal and saves interest; an EMI holiday increases effective principal and costs more interest. Whenever possible, prepay rather than seek a holiday.
Partial payments during holiday: If your lender allows it, paying even 50–75% of the normal EMI during an EMI holiday dramatically reduces the interest capitalisation. Always ask whether partial payments are accepted during the deferral period.

Related Calculators

Home Loan EMI Calculator →Calculate your home loan EMI, total interest, and amortisation schedule instantly. Built for Indian borrowers — results in seconds with a breakdown.

Loan Amortization Calculator →Generate a complete loan amortization schedule with monthly principal and interest breakdown. See exactly how your home loan or personal loan gets paid off.

Frequently Asked Questions

How much does an EMI holiday actually cost?

An EMI holiday is not free, interest continues to accrue during the pause. For a ₹50 lakh home loan at 8.75%, each month of EMI holiday adds approximately ₹36,458 in accrued interest that is capitalised into the outstanding principal. A 6-month EMI holiday adds ₹2.19 lakh to your outstanding loan, which then accrues further interest for the remaining tenure.

Will my EMI increase or tenure extend after an EMI holiday?

Lenders typically offer the choice: extend the tenure (keeping EMI the same) or increase the EMI (keeping tenure the same). Most borrowers opt for tenure extension. However, the total interest paid over the loan life increases significantly, often several times the short-term relief obtained.

Who typically gets an EMI holiday?

EMI holidays are most commonly offered: (1) at loan disbursement for under-construction properties, paying interest-only until possession; (2) during financial hardship, some lenders grant EMI holidays for 1–3 months to borrowers facing job loss or illness; (3) for education loans, many education loans have a moratorium period covering the course duration plus 6–12 months.

Is an EMI holiday the same as a moratorium?

They are related but distinct. An EMI holiday is granted by an individual lender to a specific borrower, typically at the borrower's request. A moratorium is system-wide, typically mandated by the RBI or government during crises (like the COVID-19 2020 moratorium). Both result in deferred payments with compounding interest, the mechanics are the same.

Should I take an EMI holiday if offered?

Only if you genuinely cannot make payments. The long-term cost is significant. If you can make even partial payments during the holiday period, do so, every rupee paid during the holiday reduces the interest capitalisation. An EMI holiday should be a last resort, not a convenience.