Credit restructuring is a certain set of special events conducted by the lender, which are aimed at reducing the debt load of the client.
In other words, credit restructuring helps to maintain a good credit history, as well as reduce payments in case of problems with repayments. FinCor Chief financier talks about the pitfalls of loan restructuring.
There are situations when a borrower is unable to fulfill his loan obligations. For such cases, banks have developed a program to solve the problem situation, which is beneficial for both parties. When a client experiences financial difficulties, restructuring is one of the very first and most effective ways to “negotiate” with a lender and maintain a clean credit history.
Reduced monthly payments by increasing the loan repayment period. Banks do this when the borrower’s income is reduced.
Grace period. A borrower who regularly repays debt can receive so-called “credit holidays” in case of temporary financial difficulties. During this period, the client only pays monthly interest.
Debt refinancing. This is a renegotiation of the contract for the amount remaining outstanding. The bank usually provides more flexible conditions - lower interest rates, a longer loan term, lower monthly installments.
Also, the bank may change the debt repayment procedure. This includes a special regime of credit services, when first the amount of the overdue part of the loan is paid, and then only interest and commission. And only after that all fines will be charged. This type is convenient in that the client can pay off gradually, without accumulating a lot of debt.
This can facilitate the return of debt, since fluctuations in the dollar and euro in the market significantly affect the debt load of the borrower.
When is the restructuring
If the borrower has financial difficulties affecting his ability to repay the loan, he must contact the bank with which he entered into a loan agreement. An application must be submitted in writing.
Also, relevant documents must be attached to it, confirming that the client had a problem situation (sick leave, certificate of dismissal, salary reduction, etc.). The bank may offer the client one of the restructuring schemes, but regardless of the choice, he must be completely sure that the problem situation of the client will be resolved soon and he will be able to repay the debt.
Pros and cons
For the borrower, the main advantages are that his good credit history is preserved, and the monthly debt load is noticeably reduced. However, as the loan term increases, this can be a problem for those who want to quickly deal with debt.
It is recommended that you contact your bank before a payment delay occurs. If the client began to experience problems with money, there is no need to wait until the debt accumulates and penalties go, and the credit institution begins to send warnings or even worse, it will give the matter to the collectors. The bank is always ready to meet its customers, will advise and find the right solution, since it is in its interests.
The bank makes the decision on restructuring individually. They may also be offered additional measures for each specific situation.
The application is filled out by the client at the bank, usually this is a pre-prepared application form. In some institutions this can be done electronically - on the bank’s website or by sending an e-mail along with scanned documents. If there is a surety, then you must also provide his written consent.