Lending is an opportunity to receive funds that the borrower does not currently have. But one way or another, the debt must be gradually returned. No one is insured against unforeseen circumstances that contribute to the reduction of solvency: reduction at work, deterioration of health, additional expenses in the family budget. And if there is no possibility to deposit money into the account according to the schedule, alternative solutions should be sought, one of which is restructuring. In this article, we will consider what debt restructuring is, what types of such services exist in a bank, how a program is issued and how much it is possible to obtain a restructuring.
What does debt restructuring mean?
Restructuring is a change in structure in a loan agreement. Loans are issued on certain conditions agreed upon by the borrower and the lender. All provisions can be specified directly in the individual conditions that are signed by the client, and in general, which are available on request and must be publicly available, for example, on the website of the financial institution.
Debt restructuring refers to a change in the terms of a loan agreement. When a loan is issued, a schedule is issued according to which payments should be made. And restructuring is an opportunity to adjust the schedule in order to avoid fines, penalties and deterioration of credit history.
The concept of restructuring includes various aspects: from changes in interest rates or currencies to the ability to defer payments up to 12 months. In simple words, this is the process of assignment by a bank in favor of a client who has fallen into a difficult financial situation. The borrower writes a statement asking for certain conditions that a banking company can satisfy.
It should be understood that restructuring is the right of the bank, but not its duty. The grounds for refusal may be any, and the financial institution may not even provide a motivated answer, since the signature on the loan agreement means that the borrower fully agrees to fulfill all the conditions. And the possibility of restructuring, as a rule, is not indicated anywhere in the documents.
But this does not mean that the bank will necessarily refuse such changes. The financial institution is not less than the borrower himself interested in, so that the client has the opportunity to pay the money.
The bank does not want to lose the client, but always looks forward to long-term cooperation, leaving the hope that in the future the borrower will again turn to this particular bank for a loan. But for restructuring there must be good reasons, which we will discuss below.
Significant reasons for restructuring
A bank company earns on loan interest. The funds received on the account go to repay the principal and interest under the contract. Therefore, the organization is interested in the borrower to contribute money.
And even if the client is currently unable to fulfill the terms of the debt, the bank is ready to make a concession, even if it loses some profit, but only so that the client continues to pay the loan.
Usually, the restructuring process is not regulated in any way, i.e. there is no possibility to bring an extract from the account where the salary goes, as a result of which the lender will immediately agree to restructuring.
The reason is a sharp deterioration in the financial situation. It is necessary to convince the bank that the borrower no longer has the opportunity to deposit funds in the same amount. Consider the main reasons:
- dismissal from work;
- salary reduction;
- the resulting disability for health reasons;
- birth of a child;
- weakening of the ruble.
The last item refers to currency transactions. With a sharp decline in the value of the ruble and the rise in price of the currency in which the loan is issued, the bank may agree to amend the contract and recalculate the transaction into rubles.
The remaining provisions relate to the personal financial characteristics of the client. And the banking organization, having considered the appeal, can decide in favor of the client so that he does not become debtors.
Varieties of restructuring
As a rule, restructuring is an individual change in the terms of the loan agreement. A client who handles such requirements may offer different directions for changing conditions.
Therefore, debt restructuring is possible in various ways. The definition of restructuring includes a range of concepts. Highlight the most frequent areas:
- credit holidays;
- interest rate change;
- increase the term;
- change in monthly payment;
- currency change;
- the opportunity for a certain period to pay only the body of the loan.
Restructuring can be carried out in various ways. This process is very individual. But consider the main directions in this process.
This option is suitable for those who have lost the opportunity to deposit money for a short time. Credit holidays can be of several types:
- exemption from monthly installments;
- exemption from interest payment.
In the first option, the borrower literally gets a vacation from the loan. The banking organization exempts from payment for a certain period, it usually ranges from 3 months to a year. At the same time, those payments that have not been made are equally distributed to subsequent installments, i.e., the amount of the following monthly payments will be higher than the previous one.
When vacations from interest the borrower can only contribute the amount of the principal debt included in the monthly payment. Each monthly installment consists of the loan amount and interest on the contract. Information about the size and composition of the monthly payment can be specified in the schedule or personal account.
Using vacations, the borrower reduces his financial burden for a certain period, but receives obligations to repay the debt in the future and in a larger amount. The interest from which the client has been exempted is also distributed to subsequent payments.
Reduced monthly payment
At some point, the monthly payment may be an unbearable burden for the borrower. The option to allow delays will only aggravate the situation, as the bank will charge a fine and interest. In such a situation, it makes sense to contact the lender with a request to reduce the EP.
The reduction in monthly installments is due to an increase in the term of the loan. As a result, the final amount to be paid will be slightly higher due to the peculiarities of the annuity payments, but the client will be able to get the option to pay a smaller amount, thereby preventing overdue debts.
As a rule, banking organizations most often agree on this type of restructuring, since the company’s profit even increases and, moreover, the variant with the problem debtor disappears.
But the operation is possible in the event that the current contract was already not originally drawn up for a maximum period. In such a situation, it simply has nowhere to extend. Depending on the bank, consumer loan loans are 5–7 years, while mortgage contracts are 25–30, or at least 50 years.
Also, the reduction of the EP is possible by reducing the rate. Interest rates that are assigned by commercial banks are dictated by market relations, and also are influenced by the refinancing rate from the Bank of Russia.
In an environment where over the past few years the rate is constantly decreasing, it becomes more profitable to get loans from year to year, as commercial bank offers are becoming more affordable.
Therefore, many borrowers who have, for example, been issued a mortgage at 17% in 2013, require a reduction in the rate, since at the moment there are alternatives and at 9%. But here the bank goes to meet only in rare cases.
Prolongation of the term
Extension of the loan period is the most suitable option for restructuring. Such a transaction is convenient if the borrower needs to reduce the amount of the monthly payment. Under contracts where a pledge is provided, it is often required to renew additional insurance services that protect the pledged item.
As a rule, this applies to mortgages and car loans. But not always it can be money from the client. Therefore, in this case, you can contact the lender with a request not to provide insurance for the current period.
A bank company can offer alternatives, such as paying a certain fine, which is significantly lower than the cost of the insurance product. In any case, it is necessary to notify the banking company so that it is possible to find alternative solutions together.
At a time when the dollar rose sharply from 30 to 80 rubles, for foreign currency lending, the amount of debt automatically rose more than twice. This caused outrage on the part of borrowers, for whom the loan amount became daunting.
Now a similar situation is no longer possible, since organizations have stopped issuing large loans in foreign currency. But for those who had a foreign exchange contract, the restructuring service was available.
However, many borrowers demanded a recalculation of the loan at the rate that was before the sharp weakening of the ruble. Banking companies made certain concessions, offering restructuring services and transferring loans to ruble accounts.
Interest rate reduction
The most popular type of change in a deal is a reduction in the interest rate. Debt restructuring within a single bank is hardly possible. After all, the rate is the company’s profit, and hardly anyone agrees to reduce profits.
The service can be approved to retain the customer. But more likely in such a situation to apply for refinancing. In essence, this is the same restructuring, only with a different lender. The scheme of action here is as follows:
- A new loan agreement is being drawn up with another bank “B”.
- Bank “B” deposits money into the account of Bank “A”, where there is a current loan.
- The bank account “A” receives an amount sufficient to close, taking into account interest for the current period.
- The borrower fulfills obligations to Bank A and receives a loan to Bank B, but on more favorable terms and at a lower interest rate.
As a result, the banking company “A” gets a certain profit and gets rid of the negative client. Banking organization “B” attracts a new borrower, and the client in this case receives a decrease in the interest rate.
How to restructure loan debt
Next, consider the process itself, how is the loan restructuring. Restructuring is a service that is possible on the basis of an application from an individual. You should not wait for an offer from a banking company, the bank is not interested in those moments where it cannot earn extra money.
The banking organization is ready to consider options if the debtor has certain financial problems. Therefore, the application should describe in detail the situation and secure it with supporting documents.
The financial institution receives an appeal and reviews it. The review procedure can take up to 30 calendar days, but, as a rule, a turnkey solution will be formed within a week.
The bank will contact the client at the specified contacts, or you should call yourself and find out the answer. In case of a positive decision, an additional agreement will be created. In order for it to take effect and a change in loan conditions will be made, you will need to go to the office and sign it.
After this, the restructuring process can be considered complete. But since such a procedure is not the responsibility of the bank, but only its right, then in many respects everything depends on the reason for which such a service is required and what documents are submitted. And also whether it is provided by the general terms of the contract. Therefore, below we consider how to achieve the restructuring of debts on a loan.
To seek a loan on more favorable terms is already the right of the borrower. For him, the bank is unlikely to offer such options. Only if as a reissue of a new loan agreement with the repayment of the previous one.
In many ways, everything depends on the conditions on which the current contract is based. There are no specific criteria by which it can be decided that the current contract is exactly suitable for restructuring and the banking company will agree to such a procedure.
Each appeal will be considered separately, and a positive decision is made individually. Consider the basic general conditions that the bank often refers to:
- no overdue debts;
- under the contract were payment;
- the term of the contract allows to extend it;
- deterioration of the financial situation of the borrower.
Banking company does not like to work with debtors. To complete the transaction reissuance procedure, you must first pay off all overdue debts. Restructuring is possible if monthly payments were made under the contract – from 3 to 6 pieces.
In a situation where the extension of the transaction by reducing the monthly payment is considered, it should be noted that in the initial term the loan allows extending it for a longer period.
And there must be good reasons for restructuring. The client’s documents, which will be discussed below, should testify to this.
Required package of documents
There are also no regulatory documents that will allow 100% to complete the restructuring. Everything remains at the discretion of the bank. Common is the statement of restructuring. It can be a fixed form (and issued by the lender), and it is also possible to make an application in a free form.
Attach additionally followed by documents that characterize the decline in total earnings. In many ways, the decision will be made on the basis of these documents. And the more of them, the more seriously the situation has deteriorated, the more accessible will be the procedure of renewal.
This package of documents includes:
- copy of employment record;
- account statement where the salary is received;
- certificate of health, including the assignment of disability;
- certificate of care on maternity leave;
- birth certificate of the child.
These are examples of documents that can assist in the restructuring procedure. A copy of labor can be provided if it contains a record of the reduction or dismissal. Account statement is necessary if for any reason for a minimum of three months the salary has become lower than in the previous period.
If your health deteriorates, you will need to attach medical documents that show the degree of restriction of labor. In case of childbirth and care on decree, supporting documents are also recommended.
Do not forget about insurance services, issued at the time of signing a loan. After all, insurers can fully or partially repay a debt to the bank upon the occurrence of an insured event.