Loan restructuring: meaning, process and what to know

Loan restructuring refers to the modification of the original terms of a loan when a borrower is facing financial difficulty and is unable to comfortably continue with the existing repayment arrangement. A loan agreement normally specifies details such as the EMI amount, repayment schedule, interest terms, and loan tenure. If the borrower experiences a change in financial circumstances, the lender may assess whether the loan can be restructured. Restructuring may involve reducing or revising the EMI, extending or modifying the loan tenure, changing the repayment schedule, or making other adjustments permitted under the applicable lending arrangement. The revised terms depend on the lender’s assessment and approval for the individual loan. However, loan restructuring does not necessarily reduce the total cost of borrowing. For example, extending the repayment period may lower the monthly EMI but can increase the total interest payable over the remaining loan tenure.

Why might a borrower consider loan restructuring?

A borrower may consider loan restructuring when a genuine change in financial circumstances makes it difficult to continue with the existing repayment schedule. Restructuring can provide an opportunity to discuss a revised repayment arrangement with the lender and manage temporary or ongoing repayment difficulties. However, it is subject to the lender’s assessment and approval.

• Change in Income: A significant reduction in salary, loss of employment, or decrease in business income may affect the borrower’s ability to pay the existing EMI.
• Unexpected Financial Commitments: Sudden or unavoidable financial obligations can place additional pressure on the borrower’s finances and make regular loan repayments difficult to maintain.
• Difficulty Managing the Existing EMI: If the current EMI no longer fits the borrower’s financial capacity, restructuring may allow the lender to assess whether a revised repayment arrangement is suitable.
• Preventing Prolonged Non-Payment: Addressing repayment difficulties early may help prevent the account from becoming further overdue. Borrowers experiencing difficulty with an upcoming EMI should review their loan details and contact the lender promptly.

In conclusion, loan restructuring may be considered when genuine financial difficulties affect a borrower’s repayment capacity. Eligibility and available options depend on factors such as the loan type, repayment history, current financial situation, and the lender’s assessment. Therefore, borrowers should contact their lender directly to understand whether restructuring is available and appropriate for their individual loan.

Loan restructuring generally involves assessing the borrower's financial situation, reviewing the loan account, and agreeing revised terms if the lender approves the request.

The process may generally involve the following stages:

1. Review your financial position
    Identify the reason for the repayment difficulty and assess the amount you can reasonably repay.
2. Review your loan details
    Check the outstanding balance, current EMI, repayment history and other relevant account information.
3. Contact the lender
    Explain the repayment difficulty and ask whether restructuring or another repayment option is available.
4. Provide supporting information
    The lender may ask for documents or information needed to assess the request and repayment capacity.
5. Wait for the lender's assessment
    The lender reviews the request against its applicable policies and the circumstances of the loan.
6. Review the revised terms
    If approved, carefully check the revised EMI, tenure, repayment schedule and applicable terms before accepting the arrangement.
7. Follow the revised repayment schedule
    Once the revised arrangement takes effect, payments should be made according to the agreed terms.

A restructuring arrangement is not effective merely because a borrower submits a request. The revised terms need to be assessed, approved and implemented according to the lender's process.

How to request loan restructuring through Bajaj Finance 

Borrowers with a Bajaj Finance loan can use the available digital loan-servicing channels to review their account details and raise relevant service requests, where applicable. The exact options displayed may vary depending on the loan account, loan type, eligibility and current platform functionality. Where assistance relating to repayment arrangements is available, borrowers can follow these general steps:
 

1. Open the Bajaj Finance App or sign in to the My Account customer portal.
2. Sign in using your registered mobile number and complete the required verification process, which may include OTP and other verification details, where applicable.
3. Go to My Relations, Loans, or the relevant section displaying your loan accounts.
4. Select the loan account for which you require assistance.
5. Review the available loan details and repayment information.
6. Go to Help and Support and use the available Raise a Request option. Select the relevant product and choose the query type and sub-query type that best match your concern.
7. Provide the requested details and upload supporting documents, if required or applicable.
8. Submit the request and keep the Service Request (SR) number or other reference details for future communication and tracking.

Submitting a request does not mean that loan restructuring or a tenure modification has been approved. Any request remains subject to the lender's assessment, applicable eligibility criteria, and the terms that may be offered for the individual loan. The available digital options may also vary by account and current platform functionality.

Loan terms that may change after restructuring 

The terms that change after restructuring depend on the lender's approved repayment arrangement and the borrower's individual circumstances.

Borrowers should compare the revised arrangement with the original loan terms before accepting it. A lower EMI, for example, does not by itself mean that the overall cost of the loan will be lower. The terms of any restructuring arrangement, including revised EMI amount, tenure, and applicable charges, are determined by your lender at the time of assessment. No standard terms can be guaranteed in advance.

How loan restructuring can affect your CIBIL Score and future borrowing

Loan restructuring can affect your CIBIL profile because it involves modifying the repayment terms of an existing loan, often in response to financial difficulty. The impact depends on the lender's reporting practices, the circumstances of the account and the applicable credit reporting framework. Before accepting a revised repayment arrangement, ask the lender how the restructuring will be reported to credit bureaus and whether any existing overdue information will remain on your credit report. Restructuring does not automatically remove earlier repayment delays or guarantee an immediate improvement in your CIBIL Score. Once the revised terms are approved, making payments according to the agreed schedule is important for maintaining your repayment record. Continued missed payments may lead to further adverse reporting and could affect future access to credit. Prospective lenders may consider the information in your credit report when assessing a future credit application, along with other factors.