Finance

Restructuring Personal Loan, Credit Card dues will be tough

Debt or loan restructuring refers to how one changes their existing loan contract terms for the borrower. The goal of loan restructuring is to manage the principal loan amount and the interest obligation due by the borrower to their lender. In general, loan restructuring tends to be an extreme and undertaken option typically when the borrower is at risk of defaulting on their loan repayments. As a result of businesses having to slow down production and severe disruption in the demand and supply chain, the option to restructure loans has more validity if one were to seek it out.

Restructuring Personal Loan

What does the loan restructuring process involve?

A personal loan can be restructured in many ways. If you wish to change your loan repayment period, you have the option to modify it. Alternatively, you can also choose to change the interest obligation frequency you have under terms with your lender that are mutually agreed upon. Your individual case will be taken into consideration, after which your loan may be approved for restructuring. Keep in mind that loan restructuring can also be referred to as EMI restructuring as there is a minimal difference between the two. One’s EMIs are automatically restructured when one’s loan is restructured to a longer tenure.

In the case of credit card EMIs, some issuers offer a loan settlement at a price. Unlike a term loan, a credit cardholder is required to pay their EMIs each month. If an individual runs up a large debt and, for the same reason, is not able to repay their credit card dues, the card issuer can present the option of converting the outstanding balance into EMIs. Now the cardholder has the option to customize how to pay off these EMIs.

The issuer may also be willing to waive off a percentage of one’s interest charges in rare cases. This is rare when it comes to the rate of interest of personal loans. But, with credit card issuers, there is a catch. As the issuer is settling the cardholder’s outstanding debt, the customer can no longer use that credit card even once there is a complete repayment of their outstanding balance amount. This classifies as a closure that is forced due to settlement.

Personal Loan Restructuring Example

Take the following example. Assume that a borrower owes a bank Rs. 1 lakh over the tenure of three years, with an interest rate of 4% per annum. As a result of personal finance hindrances, it appears that the borrower is at risk of defaulting on paying back her personal loan EMIs on time. Here is one of how her bank can restructure her personal loan. The bank can increase the length of the borrower’s tenure. Let’s assume the bank increased this tenure from three years to five years, keeping the same interest rate. The borrower has a reduced monthly liability and can get more time to revive their business or get outside of their existing debt obligations to pay off their loan’s liability.

The Bottom Line

Personal loans and other types of loans have a restructuring facility, depending on one’s circumstances and lender. Make sure you are well versed in the terms and conditions that come with restructuring a loan. Ideally, you want a loan provider willing to consider your individual case if you need to restructure your loan. When you apply for a Personal Loan on Finserv MARKETS, you get the benefit of flexibility when it comes to your repayment, instant loan approval, and contactless processing.