Facing financial difficulties and struggling with loan repayments? Loan restructuring could be the solution you need. This process allows borrowers to modify the terms of their existing loans to make repayments more manageable. In this guide, we’ll explain how loan restructuring works, its benefits, and key considerations.
What Is Loan Restructuring?
Loan restructuring is a process where lenders modify the terms of an existing loan to help borrowers facing financial hardship. This may include extending the loan tenure, reducing interest rates, or temporarily pausing EMIs. The goal is to provide financial relief while ensuring the borrower can eventually repay the loan.
How Does Loan Restructuring Work?
The loan restructuring process involves several steps:
1. Assessment of Financial Hardship
Borrowers must demonstrate genuine financial distress, such as job loss, medical emergencies, or business downturns, to qualify for restructuring.
2. Application Submission
The borrower submits a formal request to the lender, providing necessary documents like income proof, bank statements, and a restructuring proposal.
3. Lender’s Evaluation
The lender reviews the application, assesses the borrower’s repayment capacity, and determines if restructuring is feasible.
4. Revised Loan Terms
If approved, the lender offers revised terms, which may include:
- Lower interest rates
- Extended repayment tenure
- Temporary EMI moratorium
- Conversion of unpaid interest into principal
5. Agreement Signing
Once both parties agree, a revised loan agreement is signed, and the new repayment plan comes into effect.
Benefits of Loan Restructuring
- Avoids Default: Prevents loan defaults and credit score damage.
- Reduces Financial Stress: Makes repayments more manageable.
- Maintains Lender-Borrower Relationship: Helps borrowers stay in good standing with lenders.
FAQs About Loan Restructuring
1. Who is eligible for loan restructuring?
Borrowers facing genuine financial difficulties, such as job loss or reduced income, may qualify. Each lender has specific eligibility criteria.
2. Does loan restructuring affect credit score?
While restructuring may be reported to credit bureaus, it is less damaging than a default. Timely repayments under the new terms can help rebuild credit.
3. Can all types of loans be restructured?
Most loans—personal, home, business, and education loans—can be restructured, but policies vary by lender.
4. How long does the loan restructuring process take?
It typically takes 7–15 days, depending on the lender’s evaluation process and documentation requirements.
5. Are there any fees for loan restructuring?
Some lenders may charge a processing fee, while others offer restructuring as a goodwill measure. Always check with your lender.
