Moratorium

Posted in Finance, Accounting and Economics Terms, Total Reads: 1091
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Definition: Moratorium

it is a lawful postponement or delay of a specific activity. In a finance context, it means a suspension of the payment of debts until the lender is financially sound and stable.

Moratorium, in general terms refers to an authorized holding of the fulfillment of an obligation agreed upon by both the parties. It can also refer to a temporary suspension of a law in order to carry out a particular legal challenge. Moratorium can be imposed by the government or private companies in times of crisis, (e.g. earthquake, economic recession), to provide time to people to stabilize their financial condition to deal with their loans (e.g. mortgage, personal loans).

For example, a company is facing rough times , so it might have a moratorium on its marketing expenses., i.e. to cut costs, it would not spend any money on marketing.

A more proper example would be the moratorium on the student education loan. When a student takes an education loan for his education, he is exempted from paying the interest or the principal amount until he gets an employment opportunity to be able to afford paying up his loan. This is a perfect example of a moratorium on an educational loan.


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