Every person who repays the loan must be aware that in the event of temporary financial problems, they will not be immediately ordered to pay by bailiff. The loan restructuring may be a salvation, thanks to which the repayment of obligations will be smooth and on preferential terms. What is debt restructuring and who can apply for it?
Before making a decision on granting a loan, the banks thoroughly check the future client in the debtor database and familiarize themselves with his life and financial situation.
In addition to analyzing the amount of remuneration, they take into account: the type of employee contract, the number of dependents or the monthly cost of living. Another type of collateral is also insurance or a secured loan, giving banks the certainty of getting back the money they borrowed.
However, no financial analyst employed in the bank is able to predict random events that may disturb the liquidity of the borrower’s repayment obligations. Various types of accidents, illness or unforeseen expenses are common reasons for delays in paying subsequent installments. Therefore, a convenient tool, i.e. a restructuring loan, has been developed among financial institutions. It serves to protect the interests of banks, but it is often also the last resort for a person with a loan who has been in financial trouble for several months.
What is loan restructuring?
Simply put, debt restructuring is based on changing loan terms. It aims to help the borrower pay its debts. Credit restructuring is always carried out at the client’s special request. And just as importantly, it is not introduced by the bank on its own initiative. Therefore, if you, as a borrower, want to use such a solution, you must justify your willingness to change the terms of the loan being repaid.
Good arguments that can convince the bank to restructure should relate to your difficult financial and life situation. Modification of loan terms may be based on changing interest rates, extending the repayment period or the so-called “Credit holidays”.
At the same time, it is in the interest of the customer paying the loan to inform the bank as soon as possible about its financial problems. The sooner you do this, the sooner you will start paying off your debt according to the new rules. If, as a borrower, you fail to pay a specified loan installment, your bank may send a summons with a payment deadline of not less than 14 days.
Article 75 of the Banking Law 1 also stipulates that the same request should include information that the customer has the right to submit a loan restructuring application within 14 days of receiving the reminder. If a similar application is well justified, there is a good chance that the bank will agree with the client’s request.
However, if a financial institution does not want to agree to a debt restructuring, it must explain its decision in writing. Such an answer should include detailed reasons for rejecting the restructuring request.
How to justify the application for debt restructuring?
Many people who have material problems decide to submit a debt restructuring application. Stairs often appear here, because this type of writing must contain adequate justification for changing credit terms. In this case, you must give the actual reasons for the financial problems, such as: deterioration of health, unforeseen accident, employment problems or expensive car repair.
These arguments should be supported by various types of evidence. These can be: account statements, invoices from a given specialist or a medical certificate. An application with solid arguments is usually positively considered by the bank.
You can download the restructuring application from your bank’s website or use the one that was sent along with the payment reminder. In addition to effective justification, the following information must be included in the document:
- data and address of the borrower and the number of the loan agreement,
- bank name,
- chosen restructuring type – e.g. change of interest rate, extension of repayment, balloon installment or break in payment of receivables,
- length of anticipated financial problems,
- legible signature.
Depending on the bank’s requirements, an application for debt restructuring can be sent by post, e-mail or delivered in person to the headquarters of the financial institution.
What are the types of loan restructuring?
If the bank has approved the request to change the terms of the liability, then in the next step you need to choose the right type of restructuring. The most popular types of this type of financial solution include:
- change in the repayment schedule – it is based on extending the loan repayment or other arrangement of the arrears schedule. This involves increasing the number of installments, which become less of a burden for the borrower. The new distribution of installments can allow you to pay off your debt effectively. However, remember that choosing this option involves additional costs,
- interest rate modification – an attempt to reduce the statutory interest, which is a kind of margin, and thus a profit for the bank in exchange for borrowing capital. The reduction in the monthly loan installments is associated with a change in its interest rate. This solution is not very popular, but it is worth asking about it when you strive for individual loan restructuring conditions,
- credit holidays – behind this interesting and pleasant sounding method lies the temporary suspension of repayment of loan installments. The financial holiday period can last for several months, and after that the borrower returns to regular debt repayment. This solution is optimal if you are experiencing temporary financial turmoil,
- balloon installments – based on increasing the amount of one installment at the expense of others. For example, the nearest installments can be reduced and the final installments definitely increased. When you have temporary financial problems, balloon installments are a very convenient solution,
- sale of loan collateral – often customers of banks along with the loan buy various types of collateral, e.g. insurance. In some cases, it is possible to sell them, which can help you pay your debts on time. However, think carefully about this choice, because selling collateral can have various negative consequences,
- transfer of liability to another bank – it is not obvious that you change the loan repayment terms by transferring it to another bank. It often happens that a competitive bank provides a better offer that will help you survive current financial problems.
How much does loan restructuring cost?
Determining the exact costs of loan restructuring is not easy, due to the number of possible options and offers of individual banks. It is worth remembering, however, that for a given financial institution, restructuring involves devoting additional time, which must otherwise be rewarded. Therefore, most often you have to pay for the performance of the annex to the loan agreement and bank inspection.
These are not very high amounts – they are usually around a few hundred USD. After all, remember that extending your debt or changing the interest rate on individual installments is associated with higher costs. Therefore, help in the form of loan restructuring is only temporary, because in its final glory it increases the price of total debt.
The restructuring also includes mortgage loans. Unfortunately, it is slightly more difficult to fulfill than in the case of liabilities signed for shorter repayment times. The reason is obvious. Mortgages are taken for several years, if not for a lifetime, hence during its duration various planned or unplanned changes may occur. These can be: changing jobs for better, giving birth to children, health problems or unexpected loss of income. Each of these surprises significantly affects the financial situation – and thus the need to change credit conditions.
Restructuring your mortgage loan usually involves extending the repayment period, making it possible to reduce individual installments. It is also often based on a change of a bank that agrees to more favorable terms of further lending. The costs of such an undertaking are more expensive than e.g. restructuring of an ordinary cash loan. Banks usually require a professional appraisal of a real estate appraiser whose value may have changed in the meantime.
Remember that problems with paying off obligations do not have to mean long-term debt and problems with the bailiff. Quick contact with the bank and sending him a loan restructuring application can save you even in the most difficult financial situation.