BankPulse Academy

What are a moratorium and pre-EMI? (paying before the full EMI starts)

A moratorium is a pause before full repayment starts; pre-EMI is interest paid on the amount released so far.

Written 08 September 2026. For bankers in India.

In one line

In a moratorium the borrower pays no principal for a while. In pre-EMI he pays only the interest on what is released.

Both delay the principal. Nothing is repaid in this period, so the balance stays where it is.
They are not the same thing. Pre-EMI is paid every month. A full moratorium may be paid by nobody.
The unpaid interest does not vanish. It is added to the loan, and the borrower pays interest on it later.
The due date shifts. Where a moratorium is allowed, the interest becomes due only after it ends.
Borrowers underrate the cost. Two years of pre-EMI on a large loan can run past Rs 4 lakh.

Two things are being paused, and it helps to keep them apart. One is principal. The other is interest.

Pre-EMI. The bank releases the loan in parts as the building goes up. Interest runs only on what is out.

Moratorium. No instalment is due for a set period. Two forms are met at the desk.

A pause on principal only. The borrower still pays the interest each month.
A pause on both. Nothing is paid, and the interest is added to the balance.
In the second form the balance grows, so the later instalment or the later term must grow with it.

Where each is met. Pre-EMI is met on flats under construction. A moratorium is met on project loans and study loans.

Every figure below was computed by machine on 8 September 2026. The rates are only for teaching.

Sanction Rs 40,00,000 at 8.75 per cent a year. Term 20 years, starting after the last release.
Releases: Rs 12,00,000 in month 1, Rs 10,00,000 in month 7, Rs 10,00,000 in month 13, Rs 8,00,000 in month 19.
Month 1 pre-EMI is Rs 8,750. Month 7 is Rs 16,042. Month 13 is Rs 23,333.
From month 19 the whole loan is out, so pre-EMI is Rs 29,167 a month.
Over 24 months the borrower pays Rs 4,63,750 in pre-EMI.
The principal is still Rs 40,00,000. Not one rupee of it has been repaid.
The full EMI then works out to Rs 35,348, and interest over 240 months is Rs 44,83,623.

Take the same loan. The whole Rs 40,00,000 is out, so pre-EMI stays at Rs 29,167.
Twelve more months of delay cost the borrower Rs 3,50,000 in pre-EMI alone.
Total pre-EMI over 36 months is then Rs 8,13,750, and the principal has still not moved.
Tell the borrower this figure at sanction, not when the builder slips.

A loan of Rs 30,00,000 at 8.5 per cent for 20 years carries an EMI of Rs 26,035.
After 36 EMIs the balance is Rs 28,04,580. The borrower now asks for six months with nothing to pay.
Interest keeps building. After six months the balance is Rs 29,25,906, a rise of Rs 1,21,325.
Hold the term at the 204 months left. The EMI rises to Rs 27,161, which is Rs 1,126 more.
Hold the EMI at Rs 26,035 instead. The loan then needs 226 months, which is 22 months more.
The six month pause therefore costs about Rs 2,29,756 more over the rest of the loan.

RBI RULE. RBI does not fix a pre-EMI period for you. It does fix how the account is read.

Where a moratorium is allowed for paying interest, the interest becomes due only after it ends.
So that interest is not overdue during the pause, and the account does not turn bad on that ground.
That is paragraph 4.2.12.1 of the Master Circular on income recognition and asset classification, dated 1 April 2025.
The paragraph names industrial projects and plantations. Read it against your own product before you rely on it.
Paragraph 3.1.4 allows income to be taken on accrual while the account stays standard.
Paragraph 2.1.2 keeps the ordinary test: a term loan turns bad after 90 days overdue.
The floating rate circular of 18 August 2023 bars negative repayment, so the balance may not be left to grow.
The key facts sheet circular asks for the full repayment table, which must show where the full EMI starts.

BANK PRACTICE. The length of a pre-EMI period, and any moratorium, are set by each bank's credit policy.

BANKPULSE VIEW. A moratorium given because a borrower cannot pay may count as restructuring. We did not read that rule for this page.

Calling pre-EMI an EMI. It repays no principal. Say so in writing, in the borrower's own language.
Charging pre-EMI on the sanction. Interest runs on what is released, not on what is sanctioned.
Treating a moratorium as a waiver. The interest is only postponed. The borrower pays it with interest later.
Forgetting the fresh income test. After a moratorium the instalment is higher, so run the income test again.
Letting the balance grow with no limit. The 2023 circular bars negative repayment on these loans.
Leaving pre-EMI out of the income test. It is a real monthly outgo. Count it while it runs.
Missing the tax point. Pre-EMI interest has its own tax treatment. Send the borrower to his own adviser.

Read the sanction letter and find the date the full EMI must start.
List the planned releases and the amount of each. Work out the pre-EMI month by month.
Add up the pre-EMI for the whole building period. Show that one number to the borrower.
Add twelve months of delay and show that number too. Builders slip more often than they gain time.
For any moratorium, work out the balance at the end of it, before you agree to it.
Then show the two ways out: a higher instalment, or a longer term. Put both on the file.
Check that the term you offer still fits your policy on the borrower's age and the loan's life.

EMI — the full EMI is what starts once the pre-EMI period or the moratorium ends.
Reducing balance rate and flat rate — pre-EMI is charged on the amount released, so it follows the balance.
Step-up EMI — several step-up products open with an interest only block, which pauses principal.
Bullet payment — a bullet loan pauses principal for the whole term, not for part of it.
Own contribution and margin money — the borrower's own money usually goes in before the first release.
Housing loan rules — the BankPulse page for home loans, where pre-EMI is met most often.