The COVID-19 epidemic resulted in substantial financial difficulties. Many Indians have lost their jobs and become in debt in the previous two years. Businesses shut down with little to no notice, displacing hundreds of workers.
As a result, most Indian populace found it impossible to pay their loan EMIs. The Reserve Bank of India (RBI) devised a debt restructuring strategy to aid in the resolution of the issue. Let us define debt restructuring and what it comprises.
What exactly is loan restructuring?
Negotiating lower interest rates is a strategy organizations, people, and even governments employ to avoid defaulting on existing obligations. Loan restructuring costs less than bankruptcy when a debtor is struggling financially. Both the debtor and the creditor may benefit from it.
Loan restructuring 1.0
On March 27, 2020, in response to the COVID-19 scenario, the RBI declared an EMI moratorium. Following the announcement, the RBI advised all financial institutions to implement a board-approved policy to refund or modify interest paid to borrowers during the moratorium period.
Loan restructuring 2.0
Following this plan, debtors might choose a moratorium or ask for a temporary suspension of their EMI payments. Alternatively, they may ask to decrease their EMIs to keep paying their bills on time.
Loan restructuring schemes vary by bank policy.
Temporary hardship programs allow you to skip payments or fees. If you're months behind on obligations, creditors may offer to modify your loan—troubled debt restructuring.
Restructuring types
Mortgage loan modifications are one example of debt restructuring. Loan modification (restructuring) options include:
- Repayment extension
- Rate reduction
- Balance reduction
- Bringing a past-due account current and adding the outstanding amount to the principle
- Other lenders and credit card companies may offer debt restructuring to assist you in maintaining your property or avoid defaulting.
Chapter 13 bankruptcy helps you repay debts using a court-approved plan. After three to five years, the remaining obligations cancel.
Loan restructuring guidelines
These loans are refinancing-eligible:
This plan is exclusively for persons and corporations making monthly payments as of March 1, 2020.
COVID-19 has caused financial losses or decreased income/cash flow.
Before rescheduling loans, the bank or lender will examine the economic effect. Repayment history and grounds for requesting a moratorium will also be considered.
Restructuring guidelines include:
- Reduce the often-long payback time.
- Repayment changes
- Changing the number of instalments
- Rate change
- Loan amendments
In some instances, settlement payments are due after three months.
When Is the Best Time to Apply for a Loan Restructuring Scheme?
Various unpleasant circumstances in life require you to use a debt restructuring strategy. Among them are:
When You Have Lost Your Job
Banks and other financial institutions make personal loans available to qualified borrowers based on their job with a reputable firm and monthly pay credits. However, if you leave your employment for whatever reason, your income would abruptly cease. You soon run out of money to satisfy your basic demands and repay your loan EMIs.
When it comes to lower pay
Every working professional strives to make more money each month. People want to expand by the day, and quickly rising inflation fuels the fire. Covid-19 decreased consumer demand for goods and services. The economic downturn, war, natural catastrophes, and unnatural disasters severely impact a company's capacity to pay regular monthly salaries to its workers.
When your company is suffering massive losses
Various businesses and organizations use loans to develop operations, fulfil daily financial responsibilities, acquire costly technology and software, and build offices in new places. It is challenging to maintain your company's success month after month. A significant shift in customer expectations from your brand, intense competition from rival companies, negative propaganda in media and social media channels, defects in products and services, changes in government regulations, and other factors all have a significant impact on your company's monthly business volume.
Child care maternity leave
Many male and female parents take maternity leave to care for their newborn kids. Working professionals' pay cut while on maternity leave. As a result, it is difficult for individuals to meet all of their critical financial responsibilities while still repaying their loan EMIs. Thus, participation in a debt restructuring plan will provide them with temporary relief from loan payback obligations (6-8 months).
Physical and mental conditions
In today's fast-paced and sophisticated society, our lives are highly unexpected. We never know what will happen in the following minute, hour, week, month, or year. Assume you have an injury that necessitates additional time in the hospital for quick recovery and rehabilitation. If there is no other earning person in the family or if they refuse to give financial assistance, you may encounter financial difficulties.
The bank's unexpected move
It would not be incorrect to suggest that loan repayment puts extra strain on most people's limited monthly income. Even organizations with solid financial standing experience difficulties when it comes to repaying borrowed funds with interest rates. If a bank unexpectedly raises the loan interest rate, repayment becomes more expensive.
Wrapping Up
Loan restructuring will be beneficial only when a person is under financial difficulty and knows that he will be unable to pay EMIs in the future or will default on EMI payments. Hopefully, you found the above personal loan restructuring information beneficial. If you believe that loan modification would not assist, debt consolidation is an option. You might apply for a loan from Tata Capital to help settle any existing debt. Once you have paid off all your debts, you need to concentrate on the one loan with Tata Capital. It will dramatically lower the amount of interest you will pay.
15 September 2022
5 mins read
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