Loan repayment is a problem when income is suddenly reduced or when you encounter other life problems. The borrowers receive restructuring tools. Retail banks and loan companies are primarily interested in credit restructuring , not withdrawal from the contract, because this entails a reduction or loss of profits.
Credit restructuring is the change of debt repayment terms to suit the current economic situation of the borrower. Most often, credit restructuring closes at the bank where we have a loan and consists in extending the loan period and thus reducing the amount of the monthly installment. We can also use the restructuring if we want to shorten the loan period, i.e. pay off our liabilities faster, which in turn is associated with an increase in the monthly installment. However, the change in the terms of the loan is not only closed within the facility in which we made the commitment.
The most popular restructuring tools
Credit restructuring consists of several interesting tools, namely consolidation, refinancing, declaration of consumer bankruptcy, signing an annex to the current contract, and providing additional collateral.
What is consolidation?
Loan consolidation is useful when you have many short-term loans and thus expose yourself to unnecessary transfer fees. Added to this is lower and higher interest rates on debts. The consolidation averages the interest rate on loans obtained so far and guarantees the lowest monthly installment possible. A catch in consolidation? This extends the loan period, which entails slightly higher total repayment costs.
A few words about refinancing
Credit refinancing is another method of restructuring. How it works? One can say that refinancing is about replacing an expensive liability with a cheaper one. This is possible because many financial institutions try to take over customers with positive creditworthiness. Credit refinancing works especially well with large amounts of debts, mortgages taken during high interest rates.
The final solution for the borrower from financial difficulties
Declaration of consumer bankruptcy is the final method, which de facto excludes the borrower from raising further liabilities. In the declaration of consumer bankruptcy, a shorter repayment plan is defined and the arrears, including penalty interest, are canceled. The law is constantly changing in favor of borrowers. Until now, bankruptcy was possible only after finding a random, very crisis situation. There are now more liberal restructuring conditions.
When is it worth taking steps to restructure your debt?
Certainly not at the last minute, because in the event of a sudden deterioration of creditworthiness, the bank withdraws from risky contracts in accordance with internal and legal procedures. The recommendations of the Polish Financial Supervision Authority and the guidelines of the Banking Law speak indirectly. Banks must not take excessive risk in servicing clients (borrowers) because they are institutions of public trust.