For some individuals, the time might come when they are not able to make timely EMI payments during their loan journey. This could be due to any emergencies or unexpected situations that require heavy expenditure. Such situations can lead one to use up all their available funds, leaving nothing for Personal Loan EMI payments. This can potentially harm the credit score and possibly increase the likelihood of a loan default.
This is where loan restructuring comes into the picture. Loan restructuring is a process where financially distressed borrowers can renegotiate the loan terms with their lender to avoid default. This facility can be treated as a last resort for loan repayment. The process gives borrowers some flexibility and some buffer time till he/she restore financial stability during their Personal Loan tenure.
After the advent of COVID-19, many borrowers faced a financial crunch and were not able to make EMI payments. The Reserve Bank of India (RBI) granted relief to such borrowers by issuing a moratorium period, which ended in August 2020. Post that, borrowers were expected to repay their Personal Loans and other loans as per the revised loan terms.
However, many individual borrowers and business owners who suffered a capital crunch required more time to repay. Taking this into account, the RBI launched a one-time loan restructuring scheme to help borrowers alter certain loan terms to gain stability and avoid default. The scheme allowed borrowers to renegotiate EMI or loan tenure or both to adjust the overall repayment schedule as agreed upon by their lender. Given the extraordinary situation posed by the COVID’19 pandemic, the RBI came up with this solution to provide some relief to countless borrowers who saw a loss of income or disruption in the same.
Benefits of loan restructuring
As per the RBI’s guidelines, under a loan restructuring scheme, lenders could either extend the loan tenure of a Personal Loan or reduce the EMI as per the repayment capacity. The loan tenure extension was limited to 24 months.
In addition to this, borrowers could also transfer their outstanding amount to another credit facility to ease the burden of debt. The Personal Loan account was kept under ‘standard’ and not in the ‘default’ section until the lender agreed to proceed with loan restructuring.
The lender had 90 days with them to proceed with the loan restructuring plan and modify the loan terms. If the lender failed to do so, the Personal Loan account was declared as a non-performing asset.
If the lender agreed to the loan restructuring terms, it was reported to the credit bureau and the loan was termed as ‘Restructured’. This impacted borrower’s bureau score. However, this can be rectified in the future by making timely payments according to the revised loan terms and tenure.
How to apply for a loan restructuring scheme
During Covid 19 pandemic RBI allowed borrowers to do the loan restructuring and below are steps followed during the phase to do the loan structuring.
To get a Personal Loan restructured, borrowers must file a formal application for loan restructuring with their lender. This can be either online or offline, based on the lender’s preferred channel. After the evaluation of the loan restructuring process, depending on the lender’s internal loan restructuring policy, the borrower will be required to submit documents.
Post that, the lender will verify the documents, the borrower’s repayment capacity, and the information mentioned in the application. Only then the lender may accept the loan restructuring request. After approval, the lender will discuss the revised loan terms with the borrower. If he/she agrees to the terms, the revised schedule will be shared by the lender.
Until the entire loan restructuring application process is completed, the borrower must make EMI payments as per the current schedule. Failure to pay EMIs will attract penalties, and extra charges, and might even lead to default. No extra line of credit will be given under this scheme.
Loan restructuring can be a good option as a last resort. However, it is important to make timely payments to manage your finances and budget. If you wish to borrow a Personal Loan, you can use an online Personal Loan EMI calculator to determine your EMIs and plan your monthly budget accordingly. In fact, it is recommended that you first determine the amount you can repay every month using a Personal Loan EMI calculator, by inputting the desired loan amount, applicable interest rate, and tenure.
By paying your monthly installments on time, you will be able to maintain a healthy credit score. This will enable you to get Personal Loans or Business Loans without any hassle in the future.