Credit restructuring – how does it work?

25 Feb

When we apply for a larger loan spread over a longer period, especially for many years, we usually only take into account the current financial situation. We take into account current earnings, living costs as well as liabilities and loans charged to the household budget. As long as everything goes according to plan, credit is not too much of a burden. However, no one can predict what will happen in both the short and long term.

A stable financial situation depends on many factors and even a slight life turmoil, such as an accident or an unexpected job loss, may cause that our safety will be seriously shaken. In such a situation, it may turn out that the installments of all obligations can be too heavy for the household budget. This condition may be temporary, but instead of waiting for a better moment and increasing the growing debt, it is worth reacting as soon as possible and finding the optimal solution.

Credit restructuring – a way to pay back the debt

Credit restructuring - a way to pay back the debt

One of the ways to pay back the debt is restructuring the loan, which is carried out at the client’s request and consists in changing the current terms or extending the repayment date. The restructuring process facilitates further repayment of the loan.

After examining the application and analyzing the current situation of the borrower, both interested parties choose the best solution for both the bank and the client. One of them is the aforementioned extension of the repayment deadline, which increases the total cost of the loan, but significantly reduces the monthly installment. This protects the borrower against problems with timely payment of liabilities, stress and penalty interest, which in effect also increase the total cost of the loan.

Other forms of loan restructuring

Other forms of loan restructuring

Another convenient form of restructuring may be the so-called credit holidays, i.e. periodical exemption from the obligation to pay installments. The repayment interruption may last 2 or 3 months, after which the repayment of the loan together with the costs from the interruption period is continued. This solution is best for borrowers whose more difficult financial situation is temporary and even a short deferment of installment payments is enough to regain financial liquidity.

Advantages of loan restructuring

Advantages of loan restructuring

Credit restructuring is a beneficial solution not only in the case of problems with timely repayment. Loan restructuring can also be applied when our finances are in a much better condition. Better work, promotion or success in business often translate into higher income. In this case, it is worth considering submitting an application for restructuring, which will increase the installment amount, but at the same time will shorten the repayment date of the entire loan.
If we decide to restructure the loan and want to negotiate the best conditions, it is worth reacting before we start having problems with timely repayment of installments. Applying for a restructuring loan when we are already in arrears and we have not informed the bank about the worse situation may have a negative impact on our perception as a reliable customer and, as a result, result in the bank’s refusal.

Credit restructuring is not the only solution to problems with timely repayment of liabilities. If we have other debts in addition to the loan, you should think about a consolidation loan. A well-chosen consolidation loan allows you to combine several liabilities from different financial institutions into one, and thanks to the extension of the loan period, the monthly installment can be lower. Although the overall cost of the loan will be slightly higher, one low installment will allow you to control your finances and regain liquidity.

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