Car Loan Moratorium Explained: Here’s How it Works

Author: Jeo George•Published on: 1/12/2026•6 Minutes

Overview:A car loan moratorium is a temporary relief measure provided by banks and financial institutions that allows borrowers to pause or defer their EMI payments for a fixed period, typically 3 to 6 months, without being marked as loan defaulters. During this period, while EMI payments are postponed, interest continues to accrue on the outstanding loan amount and is later added to the repayment schedule. This facility is especially helpful during times of financial distress, such as job loss, a medical emergency, or an economic crisis, offering borrowers much-needed breathing space without damaging their credit score. However, it is important to understand that a car loan moratorium is not an EMI waiver—it only delays payments. Once the moratorium ends, borrowers must resume EMIs along with the accumulated interest, either through slightly higher monthly payments or an extended loan tenure. While it offers immediate financial and emotional relief during tough times, borrowers should weigh the pros and cons carefully, as the deferred interest can increase the overall loan cost.

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Key Highlights:

A car loan moratorium offers you the leverage of temporary relief from EMI payments by pausing them for a specific period during the loan tenure.
The primary purpose of a car loan moratorium is not to completely waive EMI, but to postpone it for some time to give a temporary relief to the borrower.
A car loan moratorium is usually offered for 3-6 months, either as a clause when taking out the loan or during a global crisis.

Remember the challenging times of the COVID-19 outbreak, when the world had almost shut down to a standstill? At a time when people were struggling to earn enough money for their families, as the world came to a standstill, paying car loan EMIs also became an impossible task for many. That’s when governments, legal bodies and banks came forward to help by announcing a “car loan moratorium”.

Now, the concept of a car loan moratorium is not new to the world, as this policy has existed for decades. However, more and more people became aware of it during COVID-19, a pandemic, which is one of the most crucial scenarios for its application. Essentially, a concept in which people can delay their EMI payments without being labelled as a ‘defaulter’, there is more to the story of the car loan moratorium, all of which we will be describing here.

What is a Car Loan Moratorium: A General Idea

A facility offered by banks and financial institutions, a car loan moratorium is essentially a grace period, or more precisely, a temporary break during your loan tenure, allowing you to postpone car loan EMIs. During this period, the loan EMIs are paused and delayed for a particular duration, while the interest on the outstanding amount continues to accrue.

The loan EMIs, along with the accumulated interest, start being deducted or charged once the car loan moratorium period ends. While banks and financial institutions typically offer the facility of a moratorium during pandemics, emergencies, and economic distress periods, many are now providing this feature under specific conditions, such as medical emergencies or personal financial distress.

Usually offered for 3-6 months, a car loan moratorium also helps the borrower in avoiding loan penalties, maintaining a stable and healthy financial track record, and navigating uncertain but temporary financial challenges without affecting their credit history.

How Does a Car Loan Moratorium Work?

Step 1: Requesting the car loan moratorium

The borrower applies for a car loan moratorium at the lender (bank or financial institution), citing a specific reason, either online via email or offline by visiting the branch office. However, to avail this facility, one should select it when obtaining the loan, which is usually given for a premium over the loan package. Apart from that, banks generally provide this facility only during global crises, such as economic slowdowns or pandemics.

Step 2: Banks pause the EMIs

After completing the paperwork at the branch office for the car loan moratorium, the bank pauses the deduction or collection of EMIs for the agreed period. During this period, banks do not penalise you, making your credit score unaffected. However, the interest on the outstanding period will continue to accumulate and be added to the remaining loan principal, thus increasing the total repayment amount.

Step 3: Resumption of repayment

After the moratorium period ends, banks start deducting or collecting the EMIs, in addition to the accrued interest. For this, the lender (i.e., a bank or financial institution) either extends the loan tenure for a specific period to keep the EMIs the same or increases the EMI amount marginally to adjust for the accrued interest. The lender shares the revised repayment schedule or statement via an official email, an update in net-banking, or a notification in the mobile application.

Pros and Cons of a Car Loan Moratorium

Pros

Temporary relief: A moratorium period gives you an immediate and short-term relief, which is beneficial in times of distress, such as job loss or a medical emergency.

Protection from Penalties: Opting for a car loan moratorium allows you to avoid late payment penalties, thus protecting your credit score and maintaining a healthy track record.

Psychological and Emotional Relief: Besides giving financial relief, a car loan moratorium also gives mental peace, while ensuring a sense of stability, thus giving you the right mental space and some time to manage funds for the EMIs.

Cons

Increase in interest: Since the interest accumulates during the moratorium, the loan amount eventually increases, resulting in higher payments after the moratorium ends. The longer the moratorium, the higher the interest, and eventually, the final settlement too.

Delay in Loan Closure: If you don’t opt for an increase in EMI, banks will increase the tenure to settle the additional interest accumulated during the moratorium period. With this, the loan tenure can increase, delaying the final settlement.

Possible instances of misunderstanding: In the past, especially during the COVID-19 breakdown, customers have mistaken moratoriums for complete EMI waivers. This is not true, as EMIs are only delayed, not forgiven altogether.

Car Loan Moratorium: Pause Now, Pay Later

Instead of waiving the EMIs from the car loan, the moratorium period postpones the EMIs for a specific duration, after which EMI collection resumes with the interest accumulated during that period. So, rather than mistaking it for complete EMI waivers, consider a car loan moratorium as a temporary saviour in times of distress. It should be opted for in emergencies, as the interest accrued during the moratorium period cannot be ignored.

FAQs

1. Can I pause my auto loan?
A car loan moratorium is only offered by a bank if you opt for its clause while availing the loan, which is usually charged for a certain amount, and is provided only in selected emergencies.

2. Is a moratorium good or bad?
While a car loan moratorium brings a temporary financial and psychological relief and protects you from unnecessary penalties, it also attracts additional interest, which is charged either by an increase in EMIs for the future or in the overall tenure.

3. Does a moratorium affect the CIBIL score?
No, the moratorium only temporarily pauses the car loan for a specific period, without negatively affecting the CIBIL or credit score.