How to lose bad debt at easier terms of loan repayment?

In a financial crisis, one may accumulate bad debt. Such financial stress may affect individuals, organizations and countries. If convinced of such difficulties, bankers restructure loans, framing new easier terms of repayment to help debtors wriggle out of crisis. Find out how debt restructuring helps when in a repayment crisis.

Hyderabad: Sometimes, financial crisis situations threaten to mar your plan. You find it very difficult to repay a loan. Such financial stress may affect individuals, institutions, organizations and countries. They may have taken loans from a few thousand rupees to hundreds of crores. Borrowing is natural. But it is important how to come out of this debt once we fall on bad times and unable to repay it.

Often, borrowers misunderstand terms like loan restructuring. In recent times, it is the most talked about term. Restructuring involves taking a new loan or transferring it (loan refinancing). They seem similar but there is a huge difference between the two. People think that they must repay a loan on time. But, not everything goes as planned. When there is severe financial stress, they seek the available means of debt repayment.

Debt restructuring is seen as a last resort that borrowers can go for in situations where instalments cannot be paid. It simply means changing the terms and conditions with the bank regarding your existing loan. The banker understands your financial situation and frames new rules regarding your existing repayment period, instalment amount, etc.

We must understand that loan restructuring facility may not be available at all times. Banks consider offer this under unavoidable situations. It largely depends on the factors wherein individuals and organisations are under severe crisis. One should attempt debt restructuring only when it seems difficult to get out of financial stress.

Under such circumstances, lenders will first analyse your financial situation. Only when they are convinced, they will agree to restructure the loan. Their aim is to protect the debtors from the difficulties of bankruptcy.

Refinancing means taking a new loan with easier terms. This comes down to taking available loans with easy terms and low interest rates when the existing loan has high interest rates and high late payment fees. Lenders also offer these under the name of 'top up loan'. This is a beneficial aspect for the responsible borrower. Benefits like interest rate reduction. More loans will be made available.

Another benefit in refinancing is you can switch to fixed interest rates in the face of expectations that floating interest rates will increase further. Borrowers agree to refinancing easily when the borrowers' repayment record is good and their credit score is high. A new loan will incur some additional fees. You should go ahead with refinancing only if you think it will benefit you even after paying these fees.