Loan Restructuring Scheme | Key Facts and Guidelines

Many people take different personal loans to fulfill various financial obligations from time to time. They promise the bank to repay the borrowed money at the right time. All borrowers must abide by the terms and conditions of the loan without fail. Unfortunately, our life is not a cake walk. Ups and downs keep happening throughout the entire phase of human life. Our ability to pay the personal loan amount is directly linked to our employment, regular salary credits, and overall financial well-being. If something wrong happens to the borrower, the capability to pay off the borrowed money is affected up to a great extent.

Covid-19 pandemic has exposed how financially fragile we are. Right from the beginning of this global health emergency,

The business opportunities for companies have reduced up to a great extent,
There is a slump in the global economy,
More than 200 million people were fired from the job worldwide,
Working professionals have been getting reduced salaries for several months,
Their cash reserves are depleted.

Both companies and working individuals face problems in loan repayment for many reasons. When all your options to repay the personal loan exhaust, you must opt for a loan restructuring scheme. It will give you much-needed relief for a short period and help get rid of debt with relaxed interest fees & conditions. Let’s study more about loan restructuring and its benefits for working professionals & financial institutions.

A Brief Introduction To Loan Restructuring

In simple words, loan restructuring is a process in which the moneylender and borrower unanimously agree to review the existing loan agreement, repayment amount, interest fees, and other terms and conditions. After prolonged negotiations and several rounds of mutual discussions, they rectify the loan agreement and try to strike a win-win deal for all parties. It helps credit borrowers to renegotiate the loan repayment liability and get some relaxation from the credit lender. Successful credit restructuring negotiations benefit you in several ways. On the other hand, the moneylender can expect to receive a revised loan amount at a deferred time. It helps them to reduce the amount of non-performing loans.

Also Read: A Detailed Analysis of Personal Loans Vs. Top-up Loans!

What Is The Right Time To Apply For A Loan Restructuring Scheme?

Different unpleasant situations in life force you to resort to a loan restructuring scheme. Some of them are

When You Lose Your Employment

Banks and other financial organizations offer personal loans to eligible borrowers based on their employment with a recognized company and monthly salary credits. However, when you lose your job due to any reason, your income is stopped all of a sudden. Soon you don’t have sufficient money to meet your basic needs and repay the loan EMIs. At this juncture, loan restructuring programs can suspend your repayment liability for six months or more, giving you the much-needed relief.

When You Get To Reduced Salaries

All working professionals try to earn more and more money every month. People’s needs grow with each passing day, and rapidly increasing inflation adds fuel to the fire. Covid-19 reduced demand for goods and services. Economic slump, war, natural calamities, manufactured disasters negatively affect a company’s ability to pay regular monthly salaries to its employees. Getting reduced wages for several months is a disaster for anyone. A sharp reduction in salary affects the quality of your life and loan payment capability.

When Your Business Is Facing Tremendous Losses

Different companies and business organizations take business loans from time to time to expand their business, meet daily financial obligations, purchase expensive hardware and software equipment, open offices in new locations. It’s not easy to keep your business in profitable mode every month. A sharp change in customer expectations from your brand, heavy competition from rival companies, negative propaganda in media and social media channels, defects in products and services, changes in government regulations, and other prospects significantly affect the business volume of your company every month. In addition, the global Health pandemic covid-19 has restricted economic activities worldwide. If you face tremendous business losses, apply for a debt restructuring program.

Also Read: A Comprehensive Overview of Personal Loans

Maternity Leave For Child Care

Many females and males take maternity leave to take care of the child who has just arrived in the world. Generally, it has been seen that working professionals get reduced salaries while on maternity leave. Therefore, it is tough for them to fulfill all essential financial obligations with less income and simultaneously repay the personal loan EMIs. Thus, participation in a loan restructuring scheme will help them game freedom from loan repayment liability for the time being( 6-8 months).

Physical And Mental Disability

Our life is quite unpredictable in today’s fast and modern world. We never know what will happen to our lives in the next moment, hour, week, month, year. For example, suppose you meet with an accident requiring more time in hospital for speedy recovery and rehabilitation.

In that case, you start to face financial problems if there is no other earning member in the family or refuse to offer financial help. If you are not earning regular income after a physical or mental disaster accident, apply for a loan restructuring program. Depending upon the seriousness of your situation, the bank will take the necessary action and then give you immediate relief.

An Unexpected Move From The Bank

It wouldn’t be wrong to say that loan repayment puts additional pressure on the limited monthly income of most individuals. Even companies with stable financial backgrounds face issues while repaying the borrowed money with interest fees. If a bank suddenly increases the loan interest fee, repayment becomes more costly. You must contact the bank and raise a formal request for a debt restructuring scheme in such a situation. It is an effective way to protect your interest and prevent a bank from destabilizing your financial life.

Significant Benefits of The Loan Restructuring Scheme

Struggling business organizations and working professionals apply for restructuring programs and get their benefits.

Immediate Relief

When a company or working professional is struggling with a shortage of finances, participation in a loan restructuring helps them a lot. Depending upon the gravity of the situation, the bank will postpone the borrower’s liability to repay the loan money for a specific time ( 6 to 12 months). You can use this period to improve your financial condition and comfortably repay the loan EMIs when repayment starts once again.

A Proven Way To Reduce Your Loan Repayment Liability

Participation in a loan restructuring scheme allows you to reduce your loan repayment obligation. In addition, the bank may revise the loan amount required to be paid depending on specific situations.

Protection From Legal Actions, Penalties, And Sanctions

When you don’t repay the loan to the bank as per the agreement, it will

Impose late fines against you,
Take legal action,
Hire a debt collection agency to recover the unpaid loan amount,
Block your profile for future consideration. If it happens, you won’t be able to take any loan from a particular bank or financial organization in the future. It also affects your dealing with other financial organizations. They will come to know about this unpleasant happening during a background check and may reject your application for the loan.

Different Types of Loan Structuring Programs

When you apply for a loan restructuring program, the bank will ask for the type of restructuring you are looking for.

An Extension In Loan Repayment Tenure

In this loan restructuring scheme, the debt amount and interest rate remain the same, but repayment tenure increases. This option is suitable for those who need to repay a large amount of money to the lender. As a borrower, you continue to fulfill the loan obligation as usual, but you get more time to pay back the borrowed money.

Temporary suspension of Loan Obligations

This method of loan restructuring is quite popular among a large number of people. It’s because the bank suspends the borrower’s debt obligations for 6-12 months. During this period, it doesn’t apply any penalty on the borrower for non-payment of the borrowed money. This option is highly suitable for people who have lost their employment due to various regions, and the loan repayment has become an extremely challenging task for them. Once credit holidays come to an end, you will have to start repaying the loan as agreed with the lender.

Reduction In Interest Rates

Interest rates applied on loans are a cause of concern for borrowers. It determines how much money you will need to repay the loan EMIs with interest. A loan with higher interest fees can cause financial losses to borrowers and negatively affect their ability to pay off the borrowed money. Therefore, the bank might reduce the interest rate applied on loans. It will reduce the overall repayment amount and benefit you financially.

Cancellation of Late Fines

If the bank prevents you from fulfilling the loan obligation and imposes penalties against you, contact the responsible bank executive and ask for its cancellation. If it refuses to write off penalties, you can go to court to exercise your right with valid arguments. In most cases, the bank and borrower can reach a mutually beneficial deal through negotiation. However, going to court for the cancellation of late fines triggers an endless cycle of litigation, which can consume your time and resources.

How To Participate In A Loan Restructuring Program?

Get More Information About Loan Restructuring First.

Each bank has its terms and conditions for loan restructuring initiatives. However, it has been observed that not all banks and financial organizations quickly agree to loan restructuring negotiations as it often goes against their economic interest. That is why you must get more information about the loan restructuring scheme of your financial organization and determine what you need to do to participate in such a program. Proper knowledge about the loan restructuring scheme and your rights allows you to protect your interest in the best possible way.

Collect All The Required Documents

To enjoy the benefits of a loan restructuring program, you need to arrange all documents first. Generally, you may require the following papers,

A copy of the existing loan agreement,
Your employment record,
Latest salary credit report,
Your credit report,
Notarized consent of the spouse to participate in the debt restructuring program,
Income tax return details and
Identity and address proof.

If you happen to be self-employed and willing to participate in a loan restructuring program, you need to submit the following document to the bank.

The latest record of your business volume, audit report, ITR details,
Latest details of the current account of your company,
Credit score report,
Loan contract paper,
Non-objection certificate from regulatory authorities. Due to numerous reasons, sometimes, the local government, federal government, leading financial regulatory authorities( such as SEBI, RBI, etc.) prevent a company from participating in a loan restructuring program.

How To Apply For A Loan Restructuring Program?

The entire process of loan restructuring scheme takes place in the following sequence-

Contact the bank that issued you a personal loan,
Fill out the form with correct details and attach the required documents,
Submit your application to the responsible bank authority and wait for their decision,
When they review your application, they will invite you for further discussion on the terms and conditions of the loan. Keep in mind that both parties try to protect their interest during the negotiation process. Therefore you must negotiate all terms and conditions of the loan frankly with the banker and try to secure a favorable deal.
If both parties agree to the revised terms and conditions of the loan, they can move ahead and sign the deal.

Prominent Reasons Why The Bank Will Not Agree To My Request For A Loan Restructuring Program

Regular delinquencies on debt payments in previous years,
You try to take advantage of loan restructuring for the second time,
There are FIRs against you because of unlawful financial activities ( scams, embezzlement, etc.) and
Bad credit score.

Useful Recommendation:

If the bank rejects your application for loan restructuring, try once again. Record all your actions with the attachment of documents confirming your application to the bank. In case of repeated refusals, insist on a written denial from bank managers and try legal options as well. Don’t have the illusion that the bank manager will call you, offering a way to make repayment easier. You need to take the required action and follow up on the latest developments.

Does Loan Restructuring Affect My Credit Score?

Loan restructuring doesn’t downgrade your credit rating if you abide by the revised agreement and pay off the loan. If not, it will harm your overall financial situation. In case of non-compliance with the new deal, the bank might take legal action to get back the unpaid loan amount. Your credit score will go down further in such an unpleasant situation.
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Conclusion

We advise all companies, firms, and individuals who have taken a loan- instead of running away from the loan repayment liability (due to unforeseen situations), better opt for a debt restructuring program. It provides immediate relief, reduces the financial burden, and helps get rid of loans with flexible terms and conditions & possibly lower interest fees. You need to know all classes of loan restructuring deals and how to protect your interest very well. Following the tips mentioned above will help you reach a beneficial agreement with the banker and comfortably restructure the debt. Good Luck!

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