When It Is Beneficial to Restructure Loans

Loans are a financial tool that allows people to access money they may not have at the moment. People take loans for various purposes: to buy a home, pay for education, start or develop a business, cover urgent expenses, or consolidate debts. The main advantage of loans is that they allow you to use funds immediately while paying them back over time. Loans can also help build a positive credit history when repaid responsibly, which makes it easier to borrow in the future. They provide flexibility, convenience, and the ability to manage large expenses without waiting to save the full amount.

Before taking a loan from a bank, make sure to calculate all possible scenarios, including unforeseen circumstances. But these circumstances are precisely the factor whose scale is difficult to predict. If you find yourself in a situation where it has become difficult to fulfill your obligations to the lender, loan restructuring may help. This is a way to change the terms of the loan. Let’s look at what types of restructuring exist, when it is beneficial to apply for it, what documents are needed, and how to increase the chances of approval.

What Loan Restructuring Is

Loan restructuring is a process in which the terms of a loan agreement are changed. They can be changed in several parameters:

• the size of the monthly payment;
• the loan term;
• the interest rate.

The main goal of these changes is to make it comfortable for you to continue repaying the loan. Everyone benefits in this situation: the borrower, because they will not have to tighten their belt too much, and the bank, because it will still get its money back.

The need for debt restructuring arises when you can no longer make monthly payments in the same amount as before because your financial situation has deteriorated. Instead of hiding from the lender and getting into new debts, there is an opportunity to contact the bank, honestly admit your situation, and find a solution together.

If you face financial difficulties and understand that you will not be able to make the monthly payment on time, notify the bank in advance. Request loan restructuring — for example, a deferral of principal payments, freezing payments for a certain period, or changing the payment schedule. You can also ask to reduce the monthly payment by increasing the loan term. As a rule, banks decide on changing the terms of a loan agreement individually, taking into account the borrower’s situation and the documents provided.

Restructuring vs. Refinancing: What’s the Difference

Restructuring is not the only way to ease the borrower’s life. There is also refinancing. They differ in several ways.

With refinancing, the borrower goes to a bank whose loan conditions seem most favorable to them. They take a new loan to close the old one and repay the new loan according to its terms. Refinancing also allows combining several debts into one loan.

In the case of restructuring, the borrower contacts the bank where the loan is issued, asks to review the repayment terms, and if the request is approved, receives a new payment schedule. Restructuring cannot be done at a different bank.

Not every loan restructuring request will be approved by banks. It is important that certain requirements are met. The terms of loan restructuring depend heavily on the specific bank, the type of loan, and the borrower’s financial situation.