Understanding Loan Restructuring vs. Loan Refinancing

In the financial sphere, loan restructuring and loan refinancing often create confusion due to their interchangeable use. This guide aims to clarify loan restructuring and its distinction from loan refinancing.

Loan restructuring involves modifying current loan terms to facilitate repayment for borrowers under financial strain. Especially vital during economic upheavals like the pandemic, restructuring allows borrowers flexibility in meeting their obligations.

Financial institutions, sometimes with government support, adapt loan terms to prevent defaults and the classification of loans as non-performing assets (NPA), impacting bank profitability. Restructuring offers a cost-effective alternative to bankruptcy declarations.

Methods in the restructuring process might include extending the repayment timeline, modifying amounts, altering installment schedules, adjusting interest rates, or providing additional loans. Certain borrowers might even receive a settlement period exceeding three months.

The Reserve Bank of India (RBI), addressing the pandemic's economic toll, established restructuring guidelines. These allow lenders to adjust terms for borrowers facing repayment issues. Options might include rescheduling payments, reducing interest rates, or offering a temporary payment moratorium.

The opportunity for restructuring is subject to lender discretion and factors like repayment capacity and loan amount. Borrowers need to contact lenders to explore restructuring possibilities.

While restructuring provides relief, it can impact credit scores and eligibility negatively. Even single loan restructuring affects credit, often tagged as "settled" or "written off," alerting potential risks of wilful default to lenders.

Loan refinancing, in contrast, involves acquiring a new loan to settle an existing debt. This option appeals when new loan terms, including rates, are more favorable, aiding in liquidity betterment and financial management.

Refinancing, though beneficial, can increase debt if not well-managed. Considerations such as costs, interest on top of potential job loss or economic downturns, are critical before selection.

Ultimately, loan restructuring is dependent on individual circumstances and isn’t universally accessible. Post-pandemic, the RBI presented a one-time restructuring option to balance borrower issues. Assessing personal finances and consulting with lenders is crucial in determining the optimal solution.

For those exploring fast approval personal loans, the Money View website or app offers applications with minimal documentation within 24 hours.

• [SEBI]: Securities and Exchange Board of India
• [PAN]: Permanent Account Number
• [PMAY]: Pradhan Mantri Awas Yojana
• [EMI]: Equated Monthly Installment
• [CIBIL]: Credit Information Bureau (India) Limited
• [Experian]: Experian Information Services (India) Private Limited
• [KYC]: Know Your Customer
• [Form 16]: Form 16
• [AMC]: Asset Management Company
• [NSDL]: National Securities Depository Limited
• [CDSL]: Central Depository Services Limited