If you are eligible for a debt restructuring, should you really opt for it? Will it be useful to you? This is a common question among borrowers. Let’s help you clarify it.
The best part about loan restructuring is that when the borrower cannot arrange the repayment dues, he can opt for loan restructuring. Loan restructuring prevents the borrower from being declared as a defaulter. When you restructure a loan, the lender changes the terms of the loan to make it convenient for the borrower to pay. This is usually done by reducing loan EMIs or offering a temporary moratorium. However, note that restructured loans impact your credit score adversely. But, it’s still better than defaulting on the loan.
With that said, there are a few scenarios where loan restructuring is not that great of an idea.
When you don’t have a repayment plan for the restructured loan
Even after restructuring, you will need to have a solid plan for repayment. The relief can turn into a nightmare if you haven’t planned your repayment plan. You can compare your present income and savings with expenses to see what is left and how that can be utilised for repayment. This way you can be prepared to repay the restructured loan on time.
When you can repay at a lower cost of borrowing using another loan
If you are planning to opt for the restructuring of high-interest loan products such as credit card outstanding or unsecured loans, it’s better to first explore other options. You may use your fixed deposits or assets to get a secured loan which is likely to involve a lower interest rate and might offer a longer repayment tenure. A secured loan can help you save on interest payable and could also offer greater repayment flexibility.
When you have adequate income to repay your loan without restructuring support
If you have enough money with you to repay your existing loan then don’t go for a restructuring support. Because when you choose to do restructuring then the credit bureau reflects that information as ‘Restructured’. This means that someday in future if you need another loan then the repayment capacity can be questioned.